Anthes v. Thompson, CA

• Citation: 28 Ark.App. 304,773 S.W.2d 846
• Decision Date: 05 July 1989
• Docket Number: No. CA,CA
• Parties: , 55 Ed. Law Rep. 326 David ANTHES and Edward Anthes Appellants, v. Edward THOMPSON, et al. Appellees. 88-176.
• Court: Court of Appeals of Arkansas

Page 846

773 S.W.2d 846

28 Ark.App. 304, 55 Ed. Law Rep. 326

David ANTHES and Edward Anthes Appellants, v. Edward THOMPSON, et al. Appellees.

No. CA 88-176.

Court of Appeals of Arkansas Division I.

July 5, 1989.

Larry E. Graddy, Clark & Adkisson, Conway, for appellants.

Timothy W. Murdoch, Russellville, for appellees.

MAYFIELD, Judge.

The appellants, David and Edward Anthes, appeal from a judgment entered in a foreclosure suit which they filed against the appellees.

In 1960, appellants' parents, Paul and Ludie Anthes, leased a tract of land in Conway, Arkansas, from Hendrix College and built the Townhouse Motel and Restaurant on it. In 1975, with the written permission of Hendrix College, the Antheses assigned the lease to their sons (the appellants) David and Edward Anthes.

On March 17, 1977, appellants sold the motel and restaurant and assigned their interest in the lease to the Thompsons, who signed a promissory note for $165,000.00, payable to appellants and secured by the improvements on the property. On August 1, 1985, the balance due on this note was $90,564.60.

On August 30, 1977, the Thompsons sold to Charles E. Palmer and his wife, Virginia Palmer; on May 30, 1978, the Palmers sold to Thomas E. Huggett and his wife, Leslie K. Huggett; on November 2, 1979, the Huggetts sold to Roderick V. Spencer; on November 21, 1979, Spencer sold to Mahesh N. Kapadia and his wife, Mamta M. Kapadia; on January 13, 1981, the Kapadias sold to Bhanwan Pema and his wife, Savitaben Kana; on June 8, 1982, Pema and Kana sold to Jack Hill and James Bryan; on November 11, 1982, Hill and Bryan sold to Raymond Krayecki and his wife, Shirley Krayecki; on February 8, 1984, an order was entered in Faulkner County Circuit Court in a suit filed by Hill and Bryan against the Krayeckis which authorized Hill and Bryan to "retake possession of the property known as the Townhouse Motel and Restaurant" and assume the indebtedness due to the Antheses, the Thompsons, the Palmers and the Kapadias. In January 1985, the motel burned (Hill was later convicted of arson for burning it) but Hill continued to make payments to the appellants until August 1985.

On September 20, 1985, appellants filed this foreclosure suit and, on October 31, 1985, Hill petitioned for bankruptcy. The bankruptcy stay was removed by order of the bankruptcy court on March 6, 1986, and the matter proceeded to trial. An amended complaint filed by appellants made all subsequent owners of the motel parties to the suit and sought judgment against them on the promissory note. Most of the subsequent owners filed cross-claims against their successors.

In the meantime, Hendrix College had a contractor demolish the remainder of the buildings and remove the debris including the concrete parking lot and swimming pool. Hendrix then intervened in this suit seeking reimbursement for the expense of restoration of the land, unpaid rent, back taxes for 1984, and treble damages for unlawful detainer pursuant to Ark. Stat.Ann. § 34-1516 (Repl.1962) [now codified as Ark.Code Ann. § 18-60-309(b)(2) (1987) ].

The court dismissed the suit against Pema and Kana and the Krayeckis holding that there had been no valid service on them. The court granted judgment for the Antheses against all subsequent owners except Hill and Bryan. The court said judgment was not granted against them because "the court has no proof before it that Hill and Bryan assumed the obligations of the previous owners who now seek to hold them liable thereon." The court also held that all who had been owners, except Hill and Bryan, and those on whom no effective service was obtained, were liable to Hendrix College for some taxes it had paid which the lessees were obligated to pay, and held all of them, including Hill and Bryan, liable for unpaid rent. The Antheses appeal the finding that there was insufficient proof in the record to show that Hill and Bryan assumed the obligations of the previous owners. Hendrix College filed a cross-appeal and argues that the court erred by not awarding it treble damages for unlawful detainer and by not assessing liability for taxes against Hill and Bryan.

On their appeal, the Antheses point out an exhibit introduced into evidence which they contend proves that Hill and Bryan agreed to assume the obligations of the previous owners. They direct our attention to Plaintiffs' Exhibit No. 8, which is a certified copy of an order, filed February 8, 1984, in Faulkner County Circuit Court in a suit brought by Hill and Bryan against the Krayeckis. Attached to the order and incorporated by reference is a copy of the contract of sale by which Hill and Bryan sold the Townhouse Motel to the Krayeckis. The order provides in part:

2. That the plaintiffs are entitled to retake possession of the property known as the Townhouse Motel and Restaurant and the plaintiffs assume the indebtness [sic] described in paragraph 1 A, B, C, D, and E of the contract of sale between the plaintiffs and the defendants dated November 4, 1982.

The specified paragraphs of the attached contract of sale provide that consideration for the sale is $450,000.00 "paid and to be paid as follows:"

(a) By Buyer assuming and discharging, according to the terms and conditions thereof, the unpaid obligation due Eddie and David Anthes pursuant to the promissory notes dated April 1, 1977, having a combined unpaid balance of $121,112.95.

(b) By Buyer assuming and discharging, according to the terms and conditions thereof, the promissory note in favor of Edward and Louise Thompson, dated July 28, 1977, and having an unpaid principal balance of approximately $71,381.26.

(c) [An obligation not involved in this case.]

(d) By Buyer assuming and discharging, according to the terms and conditions thereof, the promissory note in favor of Charles E. and Virginia Palmer, dated May 16, 1978, and having an unpaid principal balance of $78,477.28.

(e) By Buyer assuming and discharging, according to the terms and conditions thereof, the promissory note in favor of Mahesh N. Kapadia and Mamta M. Kapadia dated June 12, 1982, for $20,000.00 with a current balance of $19,403.02.

In his letter opinion, the trial judge discussed the above order as follows:

The evidence indicates that Pema and Kana returned the motel to Hill and Bryan and that Hill and Bryan then sold it again on November 4, 1982, to Krayecki. Krayecki gave the motel back to Hill and Bryan which is evidenced by Plaintiff's Exhibit # 8 which consists of an Order of the Circuit Court of Faulkner County, Arkansas, in Civil case 83-383 wherein is found a copy of the contract from Hill and Bryan to Krayecki. In the order, Hill and Bryan, as between them and Krayecki, agree to assume the obligations to Anthes, Thompson, Palmer and Kapadia. However, the requisite privity between Krayecki and Anthes, Thompson, Palmer and Kapadia is missing (as required in the cases already cited) and by the time of this document there had already been a missing link in the chain anyway.

In making this decision, the court relied on the cases of Georgia State Savings Ass'n v. Dearing, 128 Ark. 149, 193 S.W. 512 (1917); Lesser-Goldman Cotton Co. v. Fletcher, 153 Ark. 17, 239 S.W. 742 (1922); and Carolus v. Arkansas Light & Power Co., 164 Ark. 507, 262 S.W. 330 (1924). The trial court's reasoning is explained by Carolus:

In Thomas Mfg. Co. v. Prather, 65 Ark. 27 [44 S.W. 218 (1898) ], we said: "This court long ago ruled, in line with the doctrine which generally obtains in this country, that, where a promise is made to one upon a sufficient consideration, for the benefit of another, the beneficiary may sue the promisor for a breach of his promise. This doctrine operates as an exception to the elementary rule of law that a stranger to a simple contract, from whom no consideration moves, cannot sue upon it. Therefore it should be applied cautiously, and restricted to cases coming clearly within its compass. 'There must be, first, an intent by the promisee to secure some benefit to the third party; and second, some privity between the two--the promisee and the party to be benefited--and some obligation or duty owing from the former to the latter which would give him a legal or equitable claim to the benefit of the promise, or an equivalent from him, personally.' "

164 Ark. at 512-13, 262 S.W. 330.

On our de novo review, we cannot agree with the trial court's decision for two reasons. First, we think that privity is established. In Cunningham v. Federal Land Bank, 192 Ark. 156, 90 S.W.2d 503 (1936), the Arkansas Supreme Court said:

Under repeated opinions of this court we have consistently held that a grantee in a deed who expressly assumes and agrees to pay an outstanding mortgage debt against the lands conveyed by accepting such deed binds himself to the mortgagee or his assignees for the debt. This right inures to the mortgagee and his assignees as a matter of law, and no election or other affirmative action upon his part is necessary or required to establish it. See Pfeifer v. W.B. Worthen Co., 189 Ark. 469, 74 S.W. (2d) 220 [(1934) ], and cases cited therein.

192 Ark. at 159, 90 S.W.2d 503. The record contains a copy of a Security Agreement, introduced into evidence as Plaintiffs' Exhibit No. 6, which was executed when the appellants sold and assigned their motel and lease interest to the Thompsons. The debt secured by the Security Agreement was assumed by Hill and Bryan when they executed the contract of sale to "retake" the motel from the Krayeckis and when the order of the Faulkner County Circuit Court was entered authorizing their execution of the contract and their assumption of the outstanding mortgage debt due to the appellants. If any privity was necessary, it clearly existed between the Krayeckis (the promisee) and the appellants (the party to be benefited by Hill and Bryan's promise to pay the debt due appellants by the Krayeckis). The requirements set out by our supreme court...