Case Title: Barton v. Perryman

Citation: 577 S.W.2d 596

Docket Number: 78-169

State: arkansas

Court: Arkansas Supreme Court

Date: 1979-03-05T00:00:00Z

Document:
577 S.W.2d 596 (1979) Benjamin F. BARTON et ux., Appellants, v. George E. PERRYMAN et al., Appellees. No. 78-169. Supreme Court of Arkansas, In Banc. March 5, 1979. *597 Kenneth E. Suggs, North Little Rock, for appellants. Joseph L. Buffalo, Jr., Little Rock, for appellees. HICKMAN, Justice. This is an appeal of a chancery foreclosure decree and judgment on a contract of sale. We find the decree must be reversed. The sellers and appellees, George E. Perryman and others, had sold a house trailer and lot located in Perry County. The initial sale was to Vernon and Elizabeth Highfill in 1973. The sale was perfected by the execution of a Purchaser's Agreement and promissory note which was prepared by the appellees calling for payment in monthly installments. In 1974, the original Purchaser's Agreement was assigned to the appellants, Benjamin and Connie Barton. The appellees consented in writing. In 1975, the Agreement was again assigned from the Bartons to Michael and Melissa Black using an identical assignment and consent form signed by the parties. The trailer burned and it was discovered that there was no insurance. The appellees filed a foreclosure suit seeking a judgment against all of the purchasers and assignees for the balance due on the note and, after an agreed sale, a deficiency judgment was entered against these appellants and the Blacks.[1] The chancellor held that none of the parties had been released from their agreement to buy the property. The appellants argue on appeal that the chancellor was incorrect because it was the intention of the parties that upon each assignment, the assignors were discharged, and the assignees were substituted in their place as a result of a novation. We agree with this argument and reverse the decree of the chancellor. The chancellor, no doubt, relied upon the law that when rights are assigned and duties delegated, as in this case, the original obligor remains liable as a surety unless he is discharged by novation. Restatement of Contracts § 160 (1932). However, an *598 examination of the facts in this ease leads us to conclude that it was the intention of the parties in this case that the Blacks be substituted as obligors in place of the Bartons, rather than merely added as additional debtors. The original Purchaser's Agreement was prepared by the appellees, who were not attorneys, and it is a form instrument. There are two relevant provisions, one which was added by the Perrymans and the other which was contained in the form instrument. The added clause, typed in by the Perrymans, reads: The printed instrument contained a standard provision which reads as follows: In 1974, when the appellants purchased the property from the Highfills, the Perrymans prepared an assignment and a consent, which we reproduce. *599 Riddick v. White, 194 Ark. 1010,110 S.W.2d 9 (1937). That intention need not be expressly declared, but may be found upon examining the surrounding circumstances. Home Life Insurance Co. v. Arnold, 196 Ark. 1046, 120 S.W.2d 1012 (1938). Like any other contract, a novation must be supported by consideration. Here the consideration was approximately $400.00 the Bartons paid the Perrymans, *600 and an additional fee of $100.00 to the Perrymans for preparing the simple assignment and consent. The Bartons testified that they were assured that there was insurance on the property and they would be billed for any insurance and taxes. The Perrymans produced evidence that the Highfills paid $26.67 as their pro rata share of the insurance. The Perrymans, of course, point to the provision in the original contract which holds the purchaser responsible for maintaining insurance. However, it was not disputed that the Perrymans never billed the Bartons for any insurance or taxes or took any steps to make certain that the property was insured at any time after the assignment to the Bartons. (The Bartons held the property from October 2, 1974, until June 17, 1975). In 1975, the Bartons decided to sell the property to the Blacks for $1,000.00. Benjamin Barton sought the Perrymans' consent and was told that it was the policy of the Perrymans to require new purchasers to buy some equity in the property because it prevented people from moving in and out. It was agreed that the Blacks would pay $1,000.00. However, at Perrymans' insistance, $410.15 was paid directly to the Perrymans as equity. $100.00 was paid to the Perrymans for preparing an identical assignment and consent as we have reproduced herein. The Blacks paid the Bartons $500.00 and executed a note for $500.00 to the Bartons which was never paid. The trailer burned and it was discovered that there was no insurance on the property and this lawsuit naturally resulted from that fire loss. While the assignments and consents did not expressly release the old purchaser, we have no difficulty in finding that it was the intention of the Perrymans to release the old obligations by accepting the new ones. First, all of the instruments, none of which were recorded, were prepared by the Perrymans. The assignment, prepared by the Perrymans and consented to by them in writing, provided that the Bartons "do hereby sell, assign, transfer, and set over all their right, title and interest in and to the property" to the Blacks. There was no express assignment of the note but only of the Purchaser's Agreement. We have said in a similar situation that a note and mortgage are inseparable. An assignment of the note carries the mortgage, while an assignment of a mortgage alone is a nullity. Bryan v. Easton Tire Co., 262 Ark. 731, 561 S.W.2d 79 (1978). Considering the language of the assignment, which seems to set over all rights and interest in the property, and the fact that the Perrymans in preparing the assignment and consent did not mention that the note was assigned, there would seem to be an uncertainty as to the liability imposed by these documents. It is a rule of law that documents that contain ambiguities will be construed against the party who drafted them. Christmas v. Raley et al, 260 Ark. 150, 539 S.W.2d 405 (1976). Next, the Perrymans, who were not authorized to practice law, in two instances charged a fee of $100.00 for the preparation of the simple but brief documents. In each instance they required the new buyer to pay equity to them in the property. The Bartons paid approximately $400.00 and the Blacks paid $410.15 to the Perrymans upon assignment. Furthermore, there is the testimony of the Bartons that they were told that insurance did exist on the property and that they would be billed for any future insurance. While it was the buyer's obligation to maintain insurance, the contract clearly provided that the sellers, who were the Perrymans under that document, could bill them for it. There was no effort on the part of the Perrymans to make certain that the property was insured. One of the most important factors is that each time the Purchaser's Agreement was assigned, the Perrymans required of the assignee a substantial payment of principal. In summary, this is a case where the original seller chose to directly deal with each assignee requiring payment towards the principal due instead of remaining at an *601 arms length distance from the transaction. Considering all the facts we have recited herein, there is no doubt there was a mutual agreement of the parties to release the Bartons of liability. Therefore, we reverse the decree of the chancellor. Reversed. FOGLEMAN, J., dissents. FOGLEMAN, Justice, dissenting. I cannot join in the reversal of the chancery court's holding that there was not a novation in this case. If there is a novation here, then I do not see how a seller of property of this type can require that assignment of a purchase agreement be approved by him and avoid a release of the original purchaser on his obligation when he approves. In order to show why I think the chancellor was right and the majority clearly wrong, it is necessary that I show the basis for my understanding of the doctrine of novation. The various treatise writers have made general statements relating to what constitutes a novation and how a novation can be distinguished from a simple assignment of contractual rights and obligations. The following can be found in Corbin on Contracts, § 1301, p. 228: And finally, the Restatement of the Law, Contracts, pp. 798 and 805, contains these statements at the sections indicated: Arkansas cases on the subject of novation are not numerous; however, some of them could be of assistance in this case. First, novation, as an affirmative defense must be specifically pleaded, and the answer must allege the elements of a novation. Camfield Tires, Inc. v. Moseley, 253 Ark. 585, 487 S.W.2d 268. The affirmative defense of novation must be pleaded either expressly or by unequivocal implication. Although the answer of the defendants does not appear to meet the requirements of Moseley, the brief in support of the defendants' demurrer to the complaint of the plaintiff dealt with novation, so arguably, the issue of the alleged novation was raised. There are at least two Arkansas cases which contain general statements concerning the elements of novation and the application of the defense. The first of these is Simmons National Bank v. Dalton, 232 Ark. 359, 337 S.W.2d 667, where the trial court found that a novation existed on an action for a note to finance a car which had been traded to another, who agreed to make the payments on the note. Although it was conceded that the creditor was not aware of the assignment at the time it was made and did not agree to release the original debtor from liability, the appellee pointed to the fact that the creditor had attempted to collect from the assignee numerous times. This court found that the trial court erred in finding that there had been a novation. We emphasized the necessity for showing a clear and definite intention of the creditor to release the old debtor in order to sustain a defense of novation. The court made the following statements: And then, in Alston v. Bitely, 252 Ark. 79, 477 S.W.2d 446, the court was presented with the argument that an extension agreement as to notes due and payable constituted a novation for one of the parties liable on the note originally. The court sustained the chancellor's finding that a novation had not occurred. From the opinion: The chancellor specifically found that appellees accepted the assignments but did not release any of the defendants. On trial de novo, we cannot reverse this finding unless it is clearly against the preponderance of the evidence. See, Alston v. Bitely, supra. I submit that the evidence in this case fails to support a novation in several respects. I would first point out that the question here is whether there was a novation when the Perrymans accepted the assignment by the Bartons to the Blacks. *604 The assignment by the Highfills to the Bartons is not in issue. There is certainly nothing in any of the terms in the written instruments to show that the Bartons were released. There was never any submission to the Perrymans of any proposal that there be a substitution of debtors instead of a mere assumption of duty by the assignee. There is no evidence of the extinction of the old obligation and the creation of a valid new one. There is no evidence that the agreement by the Blacks with the Perrymans to pay the debt was based upon the consideration of the Perrymans to look to the Blacks instead of the Bartons, i. e., that the Perrymans assented to give up the Bartons as the old debtor. There is no evidence that the Perrymans discharged the previous contractual duty of the Bartons, or agreed to do so. To say the least, appellees did not meet their burden of showing a dear and definite intention on the part of the Perrymans to release the Bartons, i. e., one so evident as to put the matter beyond doubt. See International Minerals & Chemical Corp. v. Caplinger, 241 Ark. 1055, 411 S.W.2d 526. And there was the strongest possible evidence to the contrarythe retention by the Perrymans of the original evidence of the debt of the Bartons. See Alston v. Bitely, supra. In the very first case cited in the majority opinion, we followed the definition of novation, in our holding that there was not a novation, with this: I completely disagree with the majority's statement (for which it cites no authority) that a payment on the original debt can be the consideration for a novation. Cf. Denman v. Bruce-Rogers Co., 190 Ark. 1098, 82 S.W.2d 844. Most assuredly, a payment by the Bartons when the assignment was made to them cannot be a consideration for a novation substituting the Blacks for the Bartons as obligors; neither can the payment of a fee for preparing the document by which the assignment from the Bartons to the Blacks was made and the consent of the Perrymans was given. How, I ask, can the fact that an instrument evidencing the assignment was prepared by the Perrymans be evidence of intention to enter into a novation? Of course, it can't; and if that fact is of any probative effect at all, it indicates that there was no intention to release the Bartons, because no mention is made of any release or substitution. I also ask, what could the lack of assignment of the note have to do with the matter? Obviously, nothing, because a maker or obligor on the note can't assign it. And to whom should the Perrymans have assigned it, if they wanted to hold the Bartons? What could they possibly have put about the assignment of the note into the assignment by the Bartons of the purchase contract to the Blacks? What uncertainty as to liability did this omission create? And what ambiguity is there to be resolved against the Perrymans? The statements in the assignment and consent are crystal clear. The courts cannot import an ambiguity into an instrument in order to resolve it against the draftsman. Looney v. Allstate Insurance Co., 392 F.2d 401 (8 Cir., 1968); Bodcaw Oil Co. v. Atlantic Refining, 217 Ark. 50, 228 S.W.2d 626; Jefferson Square v. Hart Shoes, 239 Ark. 129, 388 S.W.2d 902; Inman v. Milwhite Co., 402 F.2d 122 (8 Cir, 1968). The rule that language in a contract is to be construed most strongly against the party responsible for it is the last one to be applied by the courts, and then only when a satisfactory result cannot be reached by resort to other rules of construction. 17A C.J.S. 224 Contracts § 324. *605 What possible relevance could the failure of the Perrymans to insure the property or, not having exercised their option to do so, to bill the Bartons for it, have on the question of novation? The requirement of a payment on the principal debt before consent to assignment was given would not constitute a novation, unless the payment was specifically made on condition that the assignor was to be released. See Denman v. Bruce-Rogers Co., supra. There is not one word of testimony that this was the case. I am also unable to fathom the reasoning by which the unauthorized practice of law by the creditor would be of any probative value on the question of novation. Here's another complete mystery to me: How can a seller (creditor) remain at arm's length from a transaction relating to an assignment to which he must consent? The fact-finding of a chancellor, who saw and heard the witnesses, should never be overturned upon such a flimsy basis. Obviously, I would affirm the decree. [1] (The first buyers were never served. The Blacks did not appeal.)