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Commonwealth v. Sheriff of Nottoway

Supreme Court of Virginia
Aug 28, 1980
269 S.E.2d 815 (Va. 1980)

Opinion

44005 Record No. 781268.

August 28, 1980

Present: All the Justices.

Agreement between Department of Mental Health and Mental Retardation and representative payee of patient's retirement benefits for partial payment of patient's costs of care and maintenance not a compromise and settlement of patient's obligation; Department has duty to collect unreimbursed costs from patient's estate absent financial hardship.

(1) Contract — Novation, Accord and Satisfaction, Compromise and Settlement — Defined.

(2) Mental Health and Mental Retardation — Representative Payee of Incompetent's Retirement Benefit — No Authority to Compromise Incompetent's Statutory Obligations Due Department.

(3) Statutory Construction — Mental Health and Mental Retardation (Code Sections 37.1-105, -109, -116, -117 — Department's Representative Lacked Authority to Waive Collection of Charges.

(4) Statutory Construction — Mental Health and Mental Retardation (Code Sec. 37.1-109 — Department May Modify Agreement to Avert Financial Hardship and May Repudiate Agreement if Economic Circumstances Change.

(5) Mental Health and Mental Retardation — Duty of Department to Collect Debt from Decedent's Estate when no Financial Hardship — Interests of Heirs Subordinate.

(6) Statutory Construction — Mental Health and Mental Retardation (Code Sec. 37.1-109 — Power to Modify Agreements Retroactively.

Jefferson had been a patient at State mental hospitals since 1972. None of his children agreed to make any payment from personal funds to defray the costs of his hospitalization. But a daughter, Mrs. Wright, who was the representative payee of Jefferson's railroad retirement benefit checks, agreed to pay the Department of Mental Health and Mental Retardation (the Department) $160 per month from his retirement benefits. The Department informed Mrs. Wright at that time that a patient's costs were $8.50 per day and reserved the right to increase the partial payments upon an increased ability to pay. Due to an increase in Jefferson's retirement benefits, Mrs. Wright signed a new agreement in August, 1976 increasing the payment to $9.00 per day. At that time the patient's monthly costs were approximately $850. Each monthly bill submitted to Mrs. Wright showed the agreed amount due for "period covered" and a zero balance for "unpaid balance forwarded." Jefferson died in 1977 owning 50 acres of land. Approximately two months before his death the Department obtained a judgment against him for the balance due on his hospital and medical expenses after deduction of receipts from Medicare, Medicaid and the railroad retirement benefits. Mrs. Wright and another of Jefferson's children moved to vacate the judgment. The Trial Court granted their motion and a trial was held. After Jefferson's death his administrator was substituted as defendant. The Trial Court granted final judgment for the administrator, holding that Mrs. Wright acted as Jefferson's agent and that the August, 1976 agreement was a "novation" which relieved Jefferson's estate of liability for payments in excess of those fixed in the agreement.

1. Jefferson's administrator correctly construed the Trial Court's holding to mean that the agreement constituted a compromise and settlement. A novation is a mutual agreement for discharge of a valid existing obligation by the substitution of a new valid obligation. A compromise and settlement, however, is a subcategory of "accord and satisfaction" which relates solely to the extinguishment of the debt or obligation. Only a disputed or unliquidated claim may be the basis for a compromise.

2. Jefferson, an incompetent, granted Mrs. Wright no authority, express or apparent. The Department dealt with her as a special agent, one created by federal statute with authority limited to a single asset. As such, she had no power to enter into contracts compromising and settling obligations imposed by statute upon Jefferson. The Trial Court erroneously concluded that the Department was equitably estopped by its course of dealings with Mrs. Wright as "agent" for her father to deny her authority to bind him and his estate in such a contract.

3. The Department's agent neither said nor implied that he had authority to waive any statutory requirement for collection of the charges. His authority was no greater than that delegated by the General Assembly. Under the relevant statutes (Code Sections 37.1-105, -109, -116 and -117), costs not financed otherwise are to be paid by the patient or those legally liable for his support to the extent payment does not cause financial hardship. Only when all other receipts leave a deficit does the cost fall upon the public fisc.

4. The Department may enter into agreements with the statutory obligors modifying their obligations, but it can do so only when necessary to avert financial hardship. Agreements based upon hardship may be unilaterally repudiated by the Department as economic circumstances change. Code Sec. 37.1-109. Moreover, where, as here, a patient's assets are sufficient to pay the unreimbursed costs in full, only the Attorney General, or Assistant Attorney General, may compromise and settle claims for hospital costs for less than $50,000.

5. The Department's claim, originally asserted against the patient, survives his death and attaches to his estate. The decedent left no surviving dependents, and the interests of his heirs are subordinate to the debts of his estate. Since enforcement of the claim against the estate will cause no financial hardship upon anyone protected by the statute, the Department has both the authority and the duty to collect the debt from decedent's estate.

6. Code Sec. 37.1-109 empowers the Department to modify its agreements retroactively. Commonwealth v. Sharrett, 218 Va. 684, 240 S.E.2d 522 (1978) followed.

Appeal from a judgment of the Circuit Court of Nottoway County. Hon. Thomas v. Warren, judge presiding.

Reversed and remanded.

Paul A. Sinclair, Assistant Attorney General (Marshall Coleman, Attorney General; James E. Ryan, Jr., Deputy Attorney General; Martin A. Donlan, Jr., Assistant Attorney General; George S. Cummins, on briefs), for appellants.

James T. Edmunds for appellees.


This is an appeal by the Department of Mental Health and Mental Retardation (the Department) from a judgment denying its claim against a decedent's estate for the unreimbursed costs of care and maintenance of the decedent while he was a patient in State mental hospitals.

Solomon King Jefferson died intestate on December 22, 1977, seised of 50 acres of land. Jefferson had been a patient at Central State Hospital and Piedmont State Hospital since February 2, 1972. Three months before his death, the Department filed a motion for judgment against him seeking damages of $18,964.73. This represented the balance due on total hospital and medical expenses incurred during the five years preceding June 30, 1977 after deduction of receipts from Medicare, Medicaid, and Jefferson's railroad retirement benefits. The Department also claimed damages for all unreimbursed costs incurred pending judgment. Jefferson's guardian ad litem filed an answer submitting his interests to the protection of the court. On November 1, 1977, the court awarded the Department judgment for $20,343.33.

Later that month Mrs. Ethel J. Wright and Mrs. Dora J. Hubbard, two of Jefferson's five children, moved to vacate the judgment and asked leave to present "after-discovered evidence". Although the movants were not parties to the action, the court granted the motion and trial was held on December 14, 1977. After Jefferson's death the following week, the court substituted Jefferson's administrator, d.b.n., Sheriff of Nottoway County, as the party defendant.

Quoting from the trial exhibits and a statement of facts flIed pursuant to Rule 5:9(c), we summarize the evidence.

Shortly after Jefferson's hospitalization, A. M. Chaffins, the Department's reimbursement field representative, contacted Mrs. Wright and two of her sisters "to explain the cost of care and his responsibility to secure some partial defrayment of the charges". He told them that the duty to pay "accrued charges" was "the patient's primary responsibility and his children's or his real estate's ultimate responsibility". Chaffins testified that he "never at any time said or implied" that he had authority "to waive any statutory requirement for collection of charges".

The daughters were asked to file the Department's form DMH 201. a financial disclosure statement. Section 15 stated that "[t]he patient or the person legally liable for the patient remains liable for any difference between accumulated charges and the amount paid by insurance or other benefits." The form delivered to Mrs. Wright showed that a patient's costs were "$8.50 per day". Although she did not sign the form, Mrs. Wright acknowledged at trial that she had read section 15.

None of Jefferson's children agreed to make any payment from personal funds to defray the costs of his hospitalization. However, Mrs. Wright was the representative payee of Jefferson's railroad retirement benefit checks appointed under 45 U.S.C. § 228s to manage the funds on his behalf. In a Departmental form signed March 28, 1972, she agreed that, "in consideration of the care and treatment afforded" her father, she would pay the Department "the sum of $160.00 from Railroad Retirement Benefits each month". The document further provided that "[i]t is understood that the amount agreed upon will be paid in addition to any hospitalization insurance benefits, which together are not to exceed the full charges." In a letter accepting the offer, the Department advised Mrs. Wright that it "reserve[d] the right to adjust charges from date of admission, if further investigation reveals financial ability on your part to assume a greater part of the cost involved in this patient's treatment."

In July 1976, the Department asked Mrs. Wright to sign a new agreement increasing the payment to $9.00 per day "[d]ue to the increase in Railroad Retirement benefits you are receiving". On August 4, 1976, Mrs. Wright executed the new agreement which contained language substantially the same as that in the first. At that time "the patient's monthly charge [was] approximately $850.00". "When asked by the Court . . . Mrs. Wright said . . . that she was unable to explain how she could have thought she was paying the entire monthly bill."

Using the proceeds of the railroad retirement checks, Mrs. Wright paid the bills submitted to her monthly by the Department. Each showed the agreed amount due for "period covered" and a zero balance for "unpaid balance forwarded". Although Mrs. Wright did not testify that Chaffins "in any way . . . led them to believe that the total hospitalization charge . . . was only $9.00 per day," she said that she "thought the partial payments were taking care of the entire account." Chaffins testified that "the zero balance only meant that no further balance was due that month on the agreed partial payment received." He "admitted that he never sent any bills" to Jefferson or members of his family for the unreimbursed costs.

In a letter opinion incorporated in the final order entered June 5, 1978, the trial court found that "[i]t would be unjust for the Commonwealth to deal with Mrs. Wright as agent for Solomon Jefferson as it has over the years making no reference to the huge accumulating debt", and then seek to collect the arrearage. Holding that the August 4, 1976 agreement signed by Mrs. Wright constituted a "novation" which relieved Jefferson's estate of liability for payments in excess of those fixed in the agreement, the court granted final judgment for the administrator.

Preliminarily, the Department contends (1) that, because Mrs. Wright and Mrs. Hubbard were not parties litigant, they had no standing to make the motion to vacate the original judgment; (2) that the original judgment was a default judgment and the motion to vacate alleged none of the grounds specified in Code Sec. 8.01-428; and (3) that, if the original judgment was not a default judgment, the evidence proffered in support of the motion to vacate did not satisfy the after-discovered evidence rule announced in Reiber v. Duncan, 206 Va. 657, 663, 145 S.E.2d 157, 161-62 (1965). Since we have reached a decision to reverse the final judgment on the merits, we need not address these issues.

While the trial court based its final judgment upon a finding that the August 4, 1976 agreement was a "novation", we agree with the administrator's construction of the holding below: "The Trial Court . . . held that the Department had validly contracted or agreed to accept less than the actual per capita cost for Mr. Jefferson's care and maintenance." Characterizing the August 4, 1976 agreement as a "compromise" and "an accord and satisfaction", and referring to "novation" only in passing, the administrator contends that "Mrs. Wright had the authority to negotiate with the Department for the payment and compromise", that "Mr. Chaffins had the authority to compromise", and that "Mr. Chaffins in fact properly compromised these charges." Accordingly, we must determine whether the agreement between Mrs. Wright and the Department constituted a contract of compromise and settlement binding upon the Commonwealth.

"[N]ovation is defined as a mutual agreement among all parties concerned for discharge of a valid existing obligation by the substitution of a new valid obligation on the part of the debtor or another. To effect a novation there must be a clear and definite intention on the part of all concerned that such is the purpose of the agreement, for it is a well settled principle that novation is never to be presumed."
Honeywell v. Elliott, 213 Va. 86, 89, 189 S.E.2d 331, 334 (1972).
Williston and Corbin feel that the term "novation" is best applied only when the substituted contract has a new party, either a substituted obligor or obligee. S. Williston, Contracts, Sec. 1865 (3d Ed. 1938); 6 A. Corbin, Contracts, Sec. 1293, 1297 (rev. Ed. 1962). See also Restatement, Contracts, Sec. 424 (1932).

Alternatively, the administrator argues that, under Code Sec. 11-12, the payments from Jefferson's railroad retirement benefits constituted part performance of his obligation to the Commonwealth which, when accepted by the Department, extinguished the obligation. Although this argument was urged below, the trial court did not base its judgment upon that ground, the administrator has not assigned cross-error, and we will not notice this issue. Rule 5:27.

From the language of the letter opinion, it would appear the trial court concluded that the Department was equitably estopped by its course of dealings with Mrs. Wright as "agent" for her father to deny her authority to bind him and his estate in such a contract. Aside from the question whether the doctrine of equitable estoppel applies against the sovereign in the exercise of its governmental functions, see Commonwealth v. Wash. Gas Light Co., 221 Va. 315, 269 S.E.2d 820 (1980), this day decided, we fail to see how, in a case like this, a principal-agent relationship between two parties can arise from the conduct of a third party. So far as the record shows, Jefferson, an incompetent, granted Mrs. Wright no express authority, clothed her with no apparent authority, and ratified nothing she did in his name with respect to his property. In its dealings with Mrs. Wright as representative payee of Jefferson's railroad retirement benefits, the Department dealt with her as a special agent, one created by federal statute with authority limited to a single asset. As such, she had no power to enter into contracts compromising and settling obligations imposed by state statute upon Jefferson and the assets of his estate at large.

We consider next the administrator's contention that Chaffins had authority to bind the Commonwealth in such contracts.

According to Chaffins' uncontradicted testimony, he never said or implied in his conversations with Jefferson's children that he had authority "to waive any statutory requirement for collection of charges". His authority was no greater than that delegated to. the Department by the General Assembly, and we will examine the relevant statutes.

Under Code Sec. 37.1-105, any patient in a State hospital "or the estate of any such patient or the person or persons legally liable for the support of any such patient, shall be liable for the expenses of his care, treatment and maintenance", provided that payments "shall not exceed the actual per capita cost" and that "in no event shall recovery be permitted for amounts more than five years past due." During the patient's lifetime, "the estate of such patient . . . shall not be depleted below the sum of five hundred dollars." Code Sec. 37.1-109. Upon the death of a former patient, this depletion restriction "shall after funeral expenses have no further application", but the claim against the decedent's estate is limited to "charges remaining unpaid and not more than five years past due", and the decedent's real estate is exempt so long as it is "occupied by the surviving spouse of the patient, or . . . by any dependent child". Code Sec. 37.1-117.

The Department is not required to collect charges in full when collection "would work a [financial] hardship on such patient, or the person legally liable for his support." Code Sec. 37.1-116. And, having "due regard for the financial condition and estate of the patient, his present and future needs and the present and future needs of his lawful dependents," the Department may contract with the patient or persons liable for his support and "agree to accept . . . less than the actual per capita cost of his maintenance". Code Sec. 37.1-109. But that statute makes it clear that such an agreement is merely transitory:

"Nothing contained in this title shall be construed as making any such contract permanently binding upon the Department or prohibiting it from periodically reevaluating the actual per capita cost of care, treatment, and maintenance and the financial condition and estate of any patient, his present and future needs and the present and future needs of his lawful dependents and entering into a new agreement with the patient. . . or the person liable for his support and maintenance, increasing or decreasing the sum to be paid".

The public policy underlying this statutory complex is plain. Mental health is a legitimate goal of the State. Under its police powers, the Commonwealth constructs, staffs, supplies, and operates hospitals to promote that goal. The General Assembly has devised a plan to fund the services provided patients in State facilities. Costs not financed otherwise are to be paid by the patient or those legally liable for his support to the extent payment does not cause financial hardship. Only when all other receipts leave a deficit does the cost fall upon the public fisc.

The Department charged with enforcement of this policy is empowered to enter into agreements with the statutory obligors modifying their obligations. But it can do so only when necessary to avert financial hardship, and agreements based upon hardship may be unilaterally repudiated by the Department as economic circumstances change.

Where, as here, a patient's assets or those of an estate of a former patient are sufficient to pay the unreimbursed costs in full, only the Attorney General or the assistant Attorney General assigned to the Department may compromise and settle claims for hospital costs for less than fifty thousand dollars. Code Sec. 2.1-127 (Repl. Vol. 1979).

It may be that the August 4, 1976 agreement was negotiated to spare the patient a potential hardship. Jefferson's real estate could have been subjected to the unreimbursed costs accumulated at that time. It was always possible, however, that future therapy would prove successful and that Jefferson would be released from the hospital and returned to his home. Apparently, such a contingency is what prompted the Department to agree to look to the patient's current income rather than the corpus of his estate.

Inherent in every such agreement is the statutory proviso that it is not "permanently binding upon the Department". Circumstances prevailing in 1976 have changed. The Department's claim, originally asserted against the patient, survives his death and attaches to his estate. The decedent left no surviving spouse or dependent children. The interests of his heirs, none of whom has borne any of the expenses incurred by the Commonwealth, are subordinate to the debts of the estate. And the Department makes no claim against any person liable for the patient's support. Hence, there is nothing of record to show that enforcement of its claim will cause any financial hardship upon anyone protected by the statute.

We hold, therefore, that the August 4, 1976 agreement did not constitute a compromise and settlement as the administrator contends and that the Department has both the authority and the duty to collect the debt imposed by the legislature upon the decedent's estate.

Finally, the administrator argues that "[w]hile [Code Sec. 37.1-109] may afford the Department the power to modify agreements prospectively under certain circumstances . . . the statute did not afford the Department power to modify its agreements . . . retroactively". Having only recently decided otherwise, Commonwealth v. Sharrett, 218 Va. 684, 687, 240 S.E.2d 522, 523 (1978), we reject this argument.

The judgment will be reversed and the case remanded for entry of final judgment for the Commonwealth for the unreimbursed costs incurred during the five years preceding the date of the hearing below, with interest from that date.

Reversed and remanded.


Summaries of

Commonwealth v. Sheriff of Nottoway

Supreme Court of Virginia
Aug 28, 1980
269 S.E.2d 815 (Va. 1980)
Case details for

Commonwealth v. Sheriff of Nottoway

Case Details

Full title:COMMONWEALTH OF VIRGINIA, DEPARTMENT OF MENTAL HEALTH AND MENTAL…

Court:Supreme Court of Virginia

Date published: Aug 28, 1980

Citations

269 S.E.2d 815 (Va. 1980)
269 S.E.2d 815