Opinion
CA 09-604
Opinion Delivered February 3, 2010
Appeal from the Pulaski County Circuit Court, [No. CV 08-5764], Honorable Timothy Fox, Judge, Affirmed.
This case is about the failed sale of a Maumelle condo. Nancy Siegel and Bill Halley entered into an offer and acceptance in mid-2007 for Halley to sell a condo to Siegel. The parties never closed this deal. They entered into a second offer and acceptance about two months later and Siegel put down $5,000.00 earnest money. The parties never closed this deal either, and Halley kept the $5,000.00. A month later, the parties entered into yet a third sales agreement and an accompanying promissory note. Siegel took possession of the condo and put down an additional $20,000.00 earnest money. Under the terms of the note, Siegel had six months to come up with an additional $60,000.00 to complete the sale. Thus, the condo's total sales price was $85,000.00 ($25,000.00 earnest money plus $60,000.00 due in six months).
Halley then sold the condo and assigned his promissory note and sales agreement with Siegel to a group of investors for $60,000.00 — the remaining amount Siegel owed on the condo. Siegel was unable to obtain financing by the end of the six-month period, and thus could not close. The investment group, which stood ready and willing to perform under the assigned agreement and promissory note, served Siegel with a notice to vacate and surrender the condo. After negotiations, Siegel executed a quit-claim deed and released the investment group from any further liability in exchange for $5,100.00.
Siegel eventually sued Halley, seeking a refund of her $25,000.00 earnest money. After a bench trial, the circuit court found in Halley's favor and dismissed Siegel's claim. Neither side sought findings of fact and conclusions of law, and the court did not explain its decision. Siegel appeals.
The Assignment. There is a preliminary question: What did Halley assign to the investment group? The assignment mentioned only the promissory note and did not say whether Halley was assigning the sales agreement too. But the note makes no sense apart from the agreement to sell the condo — Halley lent Siegel no money; he gave her possession of the condo and six months to finish paying for it. "A contract is to be considered as a whole, and if the agreement of the parties is embraced in two or more instruments, both or all of the instruments must be considered together." Integon Life Insurance Co. v. Vandegrift, 11 Ark. App. 270, 276-77, 669 S.W.2d 492, 495 (1984). The contractual obligation that Siegel seeks to enforce arises from both documents. Because the sales agreement and the promissory note cannot be separated, we consider them together.
Further, the parties' intent controls whether an assignment occurred. Beal Bank, S.S.B. v. Thornton, 70 Ark. App. 336, 341, 19 S.W.3d 48, 51 (2000). And "[a] parol assignment may be inferred from the conduct of the parties." McCourtney v. Ellington, 215 Ark. 539, 542, 221 S.W.2d 410, 412 (1949). "An assignment, like other agreements, may sometimes be implied from a transaction without express words." 3 SAMUEL WILLISTON, A TREATISE ON THE LAW OF CONTRACTS § 424, at 145 (Walter H.E. Jaeger ed., 3d ed. 1968). Here, the parties' undisputed conduct — the investment group stood ready to convey the condo to Siegel if she tendered the $60,000.00 — demonstrates that Halley and the investment group intended the assignment to cover both the promissory note and the sales agreement.
The Release. We first note that Halley failed to plead release as an affirmative defense in his answer. "The failure to plead an affirmative defense can result in the waiver and exclusion of the defense from the case." Seth v. St. Edward Mercy Medical Center, 375 Ark. 413, 417, 291 S.W.3d 179, 183 (2009) (internal quotations omitted); Ark. R. Civ. P. 8. Halley, however, amended his answer before trial and pleaded release as an affirmative defense. Ark. R. Civ. P. 15(a). Siegel did not move to strike this part of Halley's amended answer or otherwise object. At trial, several witnesses testified about Siegel's release of and settlement with the investment group, including whether the release also named Halley. The court also received the release into evidence. Siegel did not object to this testimony or evidence. Halley's affirmative defense of release was thus properly before the circuit court for adjudication.
When Halley assigned the promissory note and the sales agreement, he delegated his duties arising from those documents to the investment group, which in turn promised to perform in his stead. Pemberton v. Ark. State Highway Comm'n, 268 Ark. 929, 933, 597 S.W.2d 605, 608 (1980). Upon the assignment, Halley remained liable only as a surety for the investment group's performance. 6 AM. JUR. 2D Assignments § 129 (2008); Imperial Refining Co. v. Kanotex Refining Co., 29 F.2d 193, 199 (8th Cir. 1928); Strauss v. Stratojac Corp., 810 F.2d 679, 684 n. 4 (7th Cir. 1987); In re LCS Homes, Inc., 103 B.R. 736, 746 (Bankr. E.D. Va. 1989). And when it came time to perform, the investment group stood ready to do so. Siegel, however, could not and did not perform. The question becomes what effect Siegel's settlement with and release of the investment group had on Halley's liability as a surety.
"To the extent that [Siegel] release[d] [the investment group] from its duties pursuant to the underlying obligation . . . [Halley] is discharged from those duties to the extent that the release of a duty to pay money pursuant to the underlying obligation would otherwise cause [Halley] a loss." RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY § 39(c)(ii) (1996). This rule makes good sense. Upon Siegel's release of the investment group, Halley had no recourse against the group, no rights by subrogation, and no right of restitution if he were forced to refund Siegel's earnest money. RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY § 39 cmt. f. In short, Halley would have suffered a loss.
The Restatement gives the following illustration:
To induce C to lend D $10,000, S agrees to guarantee D's obligation to repay the loan. As part of a settlement of an unrelated dispute, C releases D, who is solvent, from liability with respect to the loan. C then seeks repayment of the loan from S. The release of D's duty to C also releases D's corresponding duty to S and, accordingly, would reduce the amount S could recover from D from $10,000 to $0. The difference between the cost of S's performance and the amount recoverable from D has increased from $0 to $10,000; therefore, S is discharged to the extent of its full $10,000 duty.
RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY § 39 cmt. f, illus. 9.
An old Arkansas case, Hubbard v. Pace, 34 Ark. 80 (1879), shows this principle in action. Pace rented a plantation from Lavender. Taylor agreed to act as a surety for Pace's rent obligation. Lavender also retained a lien on any crops grown by Pace as security for the rent payment. Pace, however, failed to pay the rent. Rather than exercise his lien on the year's crops, which would have more than covered the rent, Lavender allowed the crops to be shipped without exercising his lien. The supreme court called this a "fraud upon the surety." 34 Ark. at 83. The court continued:
Ordinarily, mere neglect or forbearance to sue on the part of the creditor, or failure to resort to collateral securities, will not discharge the surety. The creditor has his option. But he must not trifle with the collaterals, or release them, or do any act by which the surety's right of subrogation may be fruitless to him, when he is compelled or voluntarily pays the debt.
34 Ark. at 83-84; see also Pennsylvania National Mutual Casualty Insurance Co. v. City of Pine Bluff, 354 F.3d 945, 952-54 (8th Cir. 2004) (applying Arkansas law).
Here, Halley agreed to sell Siegel the condo for $85,000.00. He received $25,000.00 of the sales price from Siegel's earnest-money payments. He received the other $60,000.00 from the investment group when he sold the condo and assigned his sales agreement with Siegel and the accompanying promissory note to the group. By virtue of this assignment, the investment group took over all of Halley's duties under the agreement and the promissory note. Pemberton, 268 Ark. at 933, 597 S.W.2d at 608.
But when Siegel released the investment group from any further liability in exchange for $5,100.00, Halley no longer had any recourse against the group if he was forced to pay. RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY § 39 cmt. f. Thus, when Siegel sued Halley, he was in a loss situation. A judgment in Siegel's favor would have meant that Halley had sold an $85,000.00 condo to the investment group for $60,000.00 — a loss of $25,000.00. Siegel's release of the investment group thus also discharged Halley's surety obligation.
The circuit court did not expressly rely on this reasoning when it dismissed Siegel's claim. As noted, the circuit court did not explain its decision. But we may go to the record to affirm the circuit court's decision if it reached a right result albeit for a different reason. Dotson v. City of Lowell, 375 Ark. 89, 96, 289 S.W.3d 55, 61 (2008); Allen v. Allison, 356 Ark. 403, 409, 155 S.W.3d 682, 686 (2004). The circuit court reached the right decision.
Affirmed.
GRUBER and HENRY, JJ., agree.