Ray v. Donohew

• Decision Date: 09 December 1986
• Docket Number: No. 16833,16833
• Citation: 352 S.E.2d 729,177 W.Va. 441
• Court: West Virginia Supreme Court
• Parties: Mary E. RAY, Individually, and as Executrix of the Estate of Rex C. Ray, Deceased v. Grant E. DONOHEW, Naomi R. Donohew, and Nathan Donohew.

Page 729

352 S.E.2d 729

177 W.Va. 441

Mary E. RAY, Individually, and as Executrix of the Estate of Rex C. Ray, Deceased v. Grant E. DONOHEW, Naomi R. Donohew, and Nathan Donohew.

No. 16833.

Supreme Court of Appeals of

West Virginia.

Dec. 9, 1986.

Rehearing Denied Feb. 17, 1987.

Syllabus by the Court

1. "Novation is generally defined as a mutual agreement among all parties concerned for discharge of a valid existing obligation by the substitution of a new binding obligation on the part of the debtor or another. Thus, the necessary elements of a novation are (a) a previous valid obligation, (b) a consent by all parties to the new contract, (c) an abatement of the old contract and (d) a new contract which is valid and enforceable. Without any of these essential elements, there is no novation." Syl. Pt. 2, Perlick & Co. v. Lakeview Creditor's Trustee, --- W.Va. ---, 298 S.E.2d 228 (1982).

2. The words "assume" and "assumption" mean "to take upon one's self." Where the assumption of a debt is involved, the words "assume" and "assumption" are construed to mean that the person assuming will become personally liable by paying or otherwise discharging the debt.

3. The right of subrogation depends upon the facts and circumstances of each particular case. Huggins v. Fitzpatrick, 102 W.Va. 224, 228, 135 S.E. 19, 20 (1926).

4. "The doctrine of subrogation is that one who has the right to pay, and does pay, a debt which ought to have been paid by another is entitled to exercise all the remedies which the creditor possessed against that other." Syl. Pt. 1, Bassett v. Streight, 78 W.Va. 262, 88 S.E. 848 (1916).

5. The right of subrogation arises when a surety has pledged property for the debt of another as well as when the surety is personally liable to pay the debt of another.

6. "Subrogation, as a general rule, will not be decreed until the entire debt, the security for which the subrogee seeks, has been paid." Syl. Pt. 2, Price v. Lovins, 117 W.Va. 624, 187 S.E. 318 (1936).

7. "A surety who has paid a part of the debt of his principal is entitled to pro tanto subrogation upon satisfaction of the balance due the creditor." Syl. Pt. 3, Brown v. Thompson, 99 W.Va. 56, 64, 128 S.E. 309, 311 (1925).

8. "Subrogation, being a creation of equity, will not be allowed except where the subrogee has a clear case of right and no injustice will be done to another." Syl., Buskirk v. State-Planters' Bank & Trust Co., 113 W.Va. 764, 169 S.E. 738 (1933).

9. The right of subrogation can either be modified or extinguished through express contractual language, or by an action of the surety which is inconsistent with the right of subrogation, such as taking a different and independent security with the intent to rely exclusively on that security in the event of default by the principal.

10. "Under our law, co-obligors on a note are jointly and severally liable. If one co-obligor is required to pay the entire obligation, he may seek contribution from his co-obligor for fifty per centum of the amount paid." Syl. Pt. 4, Newton v. Dailey, --- W.Va. ---, 280 S.E.2d 91 (1981).

George S. Sharp, Kay Casto & Chaney, Charleston, for appellant.

J. Nicholas Barth, Charleston, for appellees.

McGRAW, Justice:

The appellant, Mary E. Ray, individually, and as the executrix of the estate of her deceased husband, Rex C. Ray, appeals from a final order of the Circuit Court of Jackson County entered on January 31, 1985, which dismissed an action brought by her against the appellees, Grant E. Donohew and Naomi R. Donohew, husband and wife. ¹ Mrs. Ray had sought to recover $312,575.23, with interest thereon, under the theories of breach of contract and subrogation. Because we find that a breach of contract has occurred and that subrogation is a proper remedy under the facts and circumstances of this case, we reverse the judgment of the Circuit Court of Jackson County and remand to that court with instructions to enter judgment for the appellant.

I.

On June 19, 1978, Grant E. Donohew and Rex C. Ray purchased, as tenants in common, 444.862 acres of land in Jackson County, which we will sometimes refer to as the "Property." In order to finance the purchase, Grant Donohew and his wife Naomi and Rex Ray and his wife Mary borrowed $1,500,000.00 from The National Bank of Commerce of Charleston. The Donohews and the Rays executed a deed of trust dated June 26, 1978, conveying the Property to trustees for the Bank to secure a promissory note of the same date made payable to the Bank in the principal sum of $1,500,000.00.

As additional collateral and security for payment of the promissory note, the Bank required Mr. Ray to pledge to the Bank certain State of West Virginia road bonds having a total face value of $550,000.00. In connection with this pledge, the Donohews executed an agreement and deed of trust dated June 26, 1978, granting and conveying to a trustee for the Rays, as the beneficiaries, two other parcels of real estate in Jackson County, consisting of a 17 acre tract, more or less, near U.S. Route 33 and Ripley, and a 67 acre tract, more or less, in Evans. The agreement and deed of trust provided, in part, that it was the intention of the parties to "guarantee and protect such additional security advanced by Rex C. Ray and to further assure the payment by Grant E. Donohew of his obligations" under the promissory note. The parties further agreed that the agreement and deed of trust was to operate as a first lien upon the two parcels with the understanding that the Rays could commence foreclosure proceedings only if the Donohews defaulted on the indebtedness owed to the Bank.

On July 13, 1978, Mr. Donohew and Mr. Ray entered into an agreement and certificate of limited partnership under the name of G.E. Development Partners. Mr. Donohew was designated as the sole general partner and Mr. Ray was designated as the sole limited partner. The Donohews and the Rays then conveyed the Property in question here to the newly formed limited partnership.

Mr. Ray's health began to deteriorate shortly after these events. He spent much of two and one-half years prior to his death on January 2, 1981, in a hospital. At the same time, the financial promise of the land development venture undertaken by G.E. Development Partners was diminishing because increasing interest rates generally depressed the demand for land. In 1980, the Donohews and the Rays, unable to sell lots as anticipated, defaulted on an interest payment of $131,451.38 due to the Bank on the promissory note.

Because of these circumstances, the Rays expressed their desire to be relieved of liability on the promissory note and to dissolve the limited partnership. Sometime prior to December 31, 1980, an oral agreement was reached between Mr. Ray and Mr. Donohew whereby Mr. Ray agreed to assign his entire interest in the limited partnership to Mr. Donohew in consideration for the assumption by Mr. Donohew of the entire indebtedness and obligation on the promissory note and the Bank's release of the Rays from liability on the promissory note. It was further agreed that the parties dissolve G.E. Development Partners.

Mr. Ray died before any action could be taken with regard to the oral agreement. However, after her husband's death, Mary Ray, individually and as the executrix of Mr. Ray's estate, agreed to carry out the understanding between Mr. Ray and Mr. Donohew. Mrs. Ray and the Donohews thereupon executed an undated written agreement, hereinafter referred to as the "Agreement," which detailed the obligations and duties of the parties in regard to the joint and several liability on the promissory note. The Agreement reflected the fact that the Bank refused to release Mrs. Ray as a co-obligor on the promissory note unless Mrs. Ray agreed to reaffirm the pledge of the road bonds to the Bank and to execute a subordination agreement with respect to the agreement and deed of trust executed by the Donohews on June 26, 1978.

The pertinent provisions of the Agreement regarding the respective obligations are:

1. Mary E. Ray as Executrix of the Will of Rex C. Ray and Mary E. Ray individually as the sole distributee and beneficiary under the Will of Rex C. Ray will assign and convey to Grant E. Donohew the entire interest of the estate of Rex C. Ray in the limited partnership. Such conveyance will be in consideration of (a) the assumption by Grant E. Donohew of any and all liability, obligations and indebtedness (except for the obligation created by the pledging of collateral as described in paragraph 5 below) of the Estate of Rex C. Ray and of Mary E. Ray individually on the note or any renewal of or substitution for the note and (b) the obtaining and delivery by Grant E. Donohew from the Bank of a full and complete release of such liability, obligation and indebtedness. Such assignment will be in the form annexed hereto as Exhibit "X".

....

5. Mary E. Ray, as Executrix of the Estate of Rex C. Ray, and Mary E. Ray, individually, agree to reaffirm the pledge as collateral for the loan from the Bank to be assumed by Grant E. Donohew and Naomi R. Donohew those certain State of West Virginia Road Bonds previously pledged as collateral to the Bank, and to make such reaffirmation of pledge in the form of Exhibit "E" attached hereto.

On February 2, 1981, the Donohews executed a deed of trust note bearing date December 31, 1980, payable to the Bank in the principal amount of $1,386,102.93, ² which was given as a substitution for the promissory note under which the Donohews and the Rays were jointly and severally liable. Prior to execution of the new deed of trust note, Mr. Donohew cured the existing default on the promissory note by paying the interest then owing. In order to secure payment of the deed of trust note, the Bank retained the deed of trust dated June 26, 1978, and the Bank required the Donohews to execute another deed of trust dated February 2, 1981, conveying four parcels of Jackson County...