Downing v. Dial
| Decision Date | 22 September 1981 |
| Docket Number | No. 1-680A159,1-680A159 |
| Citation | 426 N.E.2d 416 |
| Parties | Thomas J. DOWNING, Plaintiff-Appellant, v. James DIAL, Nidrah Dial, Patricia Watkins, Dale Watkins and Martin Lane, Defendants-Appellees, Archie Hunnicutt and Phyllis Hunnicutt, Third-Party Defendants-Appellees. |
| Court | Indiana Appellate Court |
Michael V. Gooch, Harrison & Moberly, Indianapolis, for appellant.
Alan E. Yergin, Martin R. Shields, Yergin & Yergin, New Castle, for appellees.
STATEMENT OF THE CASE
Plaintiff-appellant Thomas J. Downing (Downing) appeals from an adverse judgment rendered by the Henry Circuit Court in favor of defendants-appellees James Dial and Nidrah Dial (the Dials) in a contract action.
We affirm in part, and reverse in part.
On May 3, 1969, Downing entered into a conditional sale contract with the Dials wherein he agreed to sell to the latter certain personal property consisting of a business known as the Raintree Restaurant and Lounge. Included in the sale were inventory, furnishings, fixtures, equipment and other personal property utilized in the business, together with one-hundred shares of stock in Raintree, Inc., being all the stock in that corporation.
On October 28, 1970, with the consent of Downing as required by the contract, the Dials assigned the contract to Patricia Watkins. Later, Watkins assigned the contract to one Fitzgerald, and in that transaction Downing demanded and received, as a condition to his consent, an additional prepayment of $12,000 to enlarge his security. However, Watkins subsequently reassumed the payments, and eventually made yet another assignment to one Hunnicutt who made the payments on the contract until October 1, 1975, at which time the payments fell into default. On November 13, 1975, Downing gave the Dials notice of default as required by the contract.
The default led to this litigation commenced by Downing against the Dials and Watkins for the balance due on the contract. The trial court entered judgment for Downing and against Watkins for $18,809.21. However, the trial court denied recovery against the Dials on the theory that the assignment by the Dials to Watkins effected a novation and released the Dials from their obligations under the contract. The sole issue raised by Downing is whether novation occurred.
Another issue, relative to the counterclaim of the Dials, arises out of the related contract for the sale of connected real estate between Downing and the Dials. In that contract, Downing had agreed to convey the real estate to the Dials when the balance due had been reduced to an amount equal to the balance of the mortgage indebtedness owed by Downing to a lending institution. At this balance point the Dials had agreed to assume that mortgage. The Dials tendered a payment which would have reduced the balance to the point requiring the conveyance, but Downing could not perform because the lending institution would not consent to the assumption of the mortgage by the Dials. The Dials then refinanced the whole transaction and paid Downing off, but, in so doing, were required to pay a higher rate of interest. On the counterclaim for breach of contract, the trial court awarded the Dials $12,006.12 damages. The sole issue arising out of the counterclaim is the issue of damages.
Downing presents the following two issues for review:
I. Whether Downing's consent to the assignment of the contract operated as a novation to relieve the Dials from further obligations under the contract, and whether extrinsic matters outside the assignment and consent documents can be shown as evidence of novation; and
II. Whether the Dials incurred any damages by the breach of contract which was the subject of their counterclaim.
Issue I. Novation
The contract contained the following section prohibiting assignment:
The assignment and consent executed by the parties on October 28, 1970, is:
NOW THEREFORE, in consideration of the premises and the mutual undertaking and agreement of the parties hereto and for a valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows:
1. Assignors hereby assign all their right, title and interest in and to the business, property and capital stock and the contract of purchase aforementioned to the Assignee.
2. Assignee herewith agrees and undertakes to perform each and every obligation in said conditional sales contract specifically to be performed by Assignors and Assignee, the same as if Assignee were the sole original purchasing party under said contract.
3. In consideration of the Assignee assuming the obligation imposed upon Assignors and Assignee pursuant to the aforementioned conditional sales contract, Thomas Downing and Martin Lane, sellers in said contract do herewith consent to the assignment of said contract by Assignors to Assignee.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals this 28th day of October, 1970.
The trial court's memorandum accompanying the judgment, which we paraphrase for brevity, stated that intent, a vital element of novation, can be shown by specific agreement or by circumstances surrounding the assumption of the obligation by the new debtor. It stated that although the assignment does not contain a specific provision wherein Downing was to look solely to Watkins, when the subsequent circumstances are examined in connection with the language in paragraph 2 of the assignment as follows "... the same as if assignee were the sole original purchasing party under the contract" it is the trial court's conclusion that a novation occurred and the Dials were released. The subsequent circumstances mentioned by the court were as follows:
"1. Downing did not look to Dial and Dial for payment until default of the contract subsequent to the October 1975 failure of payment.
2. Downing agreed to subsequent assignments of the contract.
3. At the time of the assignment of the contract to Fitzgerald from Watkins, Downing requested and received $12,000 to increase the security."
We are of the opinion that the case of Boswell v. Lyon, (1980) Ind.App., 401 N.E.2d 735, transfer denied, handed down after the decision in this case, is controlling. See also White Truck Sales of Indianapolis v. Shelby National Bank of Shelbyville, (1981) Ind.App., 420 N.E.2d 1266. In Boswell, Judge Buchanan carefully reviewed the law on novation, and the construction of instruments in connection therewith. His summation bears repeating here:
"A novation simply means the substitution of one debtor for another by mutual agreement of the parties. Kelso v. Fleming (1885), 104 Ind. 180, 3 N.E. 830....
Only if a party has agreed to a substitution in the place of the other party is that other party relieved of liability. Navin v. New Colonial Hotel, Inc. (1950), 228 Ind. 128, 90 N.E.2d 128....
(N)ovation consists of four elements: there must be an existing valid contract... all parties must agree to a new contract; the old contract must be extinguished by the new contract; and the new contract must be valid. Indianapolis Morris Plan Corporation v. McAtee (1955), 125 Ind.App. 372, 125 N.E.2d 261.
Whether a novation has occurred is a matter of the intent of the parties. 58 Am.Jur.2d Novation § 20.... However, the issue of novation presents an issue of fact only if the agreement is equivocal or uncertain; when the agreement is unequivocal, the existence of a novation is a question of law. 58 Am.Jur.2d Novation § 20.
In construing assignment agreements, the general rules of contract interpretation apply. 3 I.L.E. Assignments § 41. This means that if the language of the agreement is plain and clear, its interpretations is a matter of law. Wilson v. Kauffman (1973), 156 Ind.App. 307, 296 N.E.2d 432. The court will look to the contract language as expressing the intent of the parties. Colonial Mortgage Co. of Indiana v. Windmiller (1978), Ind.App., 376 N.E.2d 529; Board of Directors, Ben Davis Conservancy Dist. v. Cloverleaf Farms, Inc. (1977), Ind.App., 359 N.E.2d 546. Only if the language is ambiguous may extrinsic evidence be used to determine the parties' intent; Huntington Mut. Ins. Co. v. Walton (Walker) (1979), Ind.App., 392 N.E.2d 1182; Wilson v. Kauffman, supra. A word or phrase is ambiguous if reasonable men could differ as to its meaning. Colonial Mortgage Co. of Indiana v. Windmiller, supra; Board of Directors, Ben Davis Conservancy Dist. of Cloverleaf Farms, Inc., supra.
Something more than the use of the term 'assignment' must be present to create a material issue of fact as to the existence of a novation. Likewise, the mere consent of the creditor to the assignment does not create an issue as to novation. See Ingalls Iron Works Co. v. Fruehauf Corp. (5th Cir. 1975) 518 F.2d 966; Smith v. Wrehe (1978), 199 Neb. 753, 261 N.W.2d 620; Moring v. Miller (1976), Fla.App., 330 So.2d 93.
In Smith v. Wrehe, supra, the Nebraska Supreme Court...
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