Henry v. Gaines-Derden Enterprises, Inc.

• Decision Date: 01 November 1993
• Docket Number: No. 93-130,GAINES-DERDEN,93-130
• Citation: 863 S.W.2d 828,314 Ark. 542
• Parties: Jake HENRY and Barbara Henry, Appellants, v.ENTERPRISES, INC., Appellee.
• Court: Arkansas Supreme Court

Page 828

863 S.W.2d 828

314 Ark. 542

Jake HENRY and Barbara Henry, Appellants, v. GAINES-DERDEN ENTERPRISES, INC., Appellee.

No. 93-130.

Supreme Court of Arkansas.

Nov. 1, 1993.

Troy Henry, Jonesboro, for appellants.

David Hodges, Little Rock, for appellee.

HOLT, Chief Justice.

In this appeal from orders entered by the Lawrence County Circuit Court, the appellants raise two points for reversal, challenging the trial court's setting aside of a default judgment in their favor and, in turn, granting summary judgment in favor of the appellee. The trial court was correct in setting aside the default judgment but, in light of proof of the existence of a genuine issue of material fact, erred in granting summary judgment.

The appellants, Jake Henry, an electrical contractor, and his wife, Barbara Henry, owed the appellee, Gaines-Derden Enterprises, Inc. (doing business as Davies Electric Supply Company), the amount of $27,346.73 on an unpaid account. Gaines-Derden filed suit against the Henrys on January 17, 1987. The lawsuit was dismissed on February 1, 1987, as a result of a settlement agreement between the parties. Gaines-Derden agreed to accept an initial payment of $10,000 and to accept a mortgage on the Henrys' property in the amount of $17,346.73. Monthly payments of $500 were to be made until the debt was paid in full.

Appellant Jake Henry made each payment on the indebtedness by check. Some of the checks were made payable to Davies Electric Supply, while others were in the name of the appellee's attorney, Josh McHughes, who endorsed all checks by stamp and deposited them in his account. On September 19, 1990, after payment of all the outstanding indebtedness, Troy Henry, the appellants' attorney, wrote to Mr. McHughes, requesting that he direct his client to sign a release deed, a copy of which was attached to the correspondence. Gaines-Derden failed to release the mortgage, and the Henrys' attorney sent additional letters to Mr. McHughes in November and December 1990, demanding a release and satisfaction of the record, and notifying the appellee's attorney that suit would be filed if no action were taken in the matter.

On January 16, 1991, the Henrys filed a complaint against Gaines-Derden, seeking damages pursuant to Ark.Code Ann. § 18-40-104 (1987), the statute requiring acknowledgment on the record of satisfaction for the amount due on any mortgage. Acknowledgment, under the statute, operates as release of the mortgage. Ark.Code Ann. § 18-40-104(b). The Henrys sought $12,500 in damages, as well as costs and attorneys' fees.

At the time the initial lawsuit was filed, in 1987, the appellee's business operations were located in Searcy, where the Secretary of State's corporate file indicated the registered agent could be reached. In the meantime, however, Gaines-Derden Enterprises had moved its offices to North Little Rock.

Unaware of the change of address, the appellants attempted service on Gaines-Derden in Searcy. When that effort proved unsuccessful, the summons and complaint were sent by certified mail to the new business address in North Little Rock. A Gaines-Derden employee, Wayne Ellsberry, picked up the envelope at the post office and signed for it on January 23, 1991.

Meanwhile, on January 23, 1991, the appellee's attorney, Mr. McHughes, executed a purported release deed on behalf of Gaines-Derden and recorded it on January 29, 1991. On February 8, 1991, Terrance W. Kenyon, the controller of Davies Electric Supply Company, prepared a letter granting Mr. McHughes "Power of Attorney to represent Davies Electric Supply to sign the release of mortgage of Real Property that belongs to Jake and Barbara Henry."

Gaines-Derden filed no answer to the Henrys' complaint, and a default judgment was entered against the appellee on March 19, 1991. Subsequently, Gaines-Derden filed a motion to set aside the judgment, and testimony was taken at a hearing on August 26, 1991. The court set aside the default judgment, ruling that service of the summons and complaint was faulty because it was not accomplished through restricted delivery on an officer or registered agent of Gaines-Derden. We agree.

The appellee then answered the Henrys' complaint and moved for a partial summary judgment, asserting that the mortgagee was not notified individually of the request for satisfaction of the mortgage as required by Ark.Code Ann. § 18-40-104 (1987). In reply, the Henrys argued that the statutory requirement had been satisfied by their having sent the request for satisfaction of the mortgage to Mr. McHughes, the attorney representing Gaines-Derden in the original lawsuit. The trial court granted the partial summary judgment, dismissing the Henrys' complaint "with prejudice." We hold, in this regard, that the trial court was in error.

I. Default Judgment

In their first argument, the appellants contend that the trial court erred in setting aside their default judgment on the grounds that service of process was faulty. Under Ark.R.Civ.P. 55(c):

The court may, upon motion, set aside a default judgment previously entered for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) the judgment is void; (3) fraud, misrepresentation, or other misconduct of an adverse party; or (4) any other reason justifying relief from the operation of the judgment. The party seeking to have the judgment set aside must demonstrate a meritorious defense to the action; however, if the judgment is void, no other defense to the action need be shown.

The standard by which we review the granting or denial of a motion to vacate a default judgment is whether the trial court abused its discretion. B & F Engineering, Inc. v. Cotroneo, 309 Ark. 175, 830 S.W.2d 835 (1992). Default judgments are not favorites of the law, and the revised Rule 55 reflects a preference for deciding cases on the merits rather than on technicalities. Id.

Two cases are controlling on this issue. In Wilburn v. Keenan Companies, Inc., 298 Ark. 461, 768 S.W.2d 531 (1989), as in the present case, service of the summons and complaint was made by certified mail, and the "restricted delivery" box was not marked. The return receipt bore the signature of "L.D. Madden" as "Agent." We overturned the lower court's refusal to set aside a default judgment, observing that:

There was no evidence that appellee had directed the summons and complaint to be mailed with restricted delivery. Nor was there any evidence that appellant had specifically authorized, in writing, that L.D. Madden was to be his agent to receive mail. Consequently, the default judgment was void ab initio, and the trial court erred in denying appellant's motion to set it aside.

298 Ark. at 463, 768 S.W.2d at 532.

In CMS Jonesboro Rehabilitation, Inc. v. Lamb, 306 Ark. 216, 219, 812 S.W.2d 472, 474 (1991), we allowed a default judgment to stand where one R.L. Wright, who had signed a receipt for certified mail with a blank restricted delivery box, was "authorized to accept restricted mail on behalf of The Corporation Company" and "signed for and accepted the mail containing the complaint and summons, the same as he would have done had the 'Restricted Delivery' box been marked." A card specifically indicating the extent of Wright's authorization was on file with the post office.

In the present case, Charles Larry Gaines testified that Wayne Ellsberry, who picked up and signed for the certified mail from the appellants, was not listed in any file at either the post office or the Secretary of State's office as an agent for service of registered mail. Instead, Mr. Ellsberry was an office salesman who periodically collected mail from the post office.

Service of summons upon a domestic corporation may be effected "by delivering a copy of the summons and complaint to an officer, partner other than a limited partner, managing or general agent, or any agent authorized by appointment or by law to receive service of summons." Ark.R.Civ.P. 4(d)(5). Mr. Ellsberry had no express authority to receive restricted mail. The lower court did not err in setting aside the default judgment as void.

II. Summary Judgment

Although couched in terms of a "partial" summary judgment on liability--a nonappealable order--the circuit court's ruling on the motion by Gaines-Derden was in substance an absolute summary judgment, as it disposed of the complaint in its entirety. The Henrys contend that the granting of summary judgment and the dismissal of the complaint was improper because two genuine issues of material fact remained in dispute: first, whether the appellee's attorney had actual or apparent authority to accept the request for acknowledgment of satisfaction; and secondly, whether the appellee had actual knowledge of the request more than sixty days prior to a valid release having been recorded.

Rule 56 of the Arkansas Rules of Civil Procedure governs motions for summary judgment. Subsection (c) provides, in relevant part:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Summary judgment is an extreme remedy that is only proper when it is clear that there are no issues of fact to be litigated. Bushong v. Garman Co., 311 Ark. 228, 843 S.W.2d 807 (1992). It is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Cash v. Carter, 312 Ark. 41, 847 S.W.2d 18 (1993).

The burden of proving that there is no genuine issue of material fact is upon the movant, and all proof submitted must be viewed in a light most favorable to the party resisting the motion. Any doubt...