Smith v. MRCC Partnership

• Decision Date: 25 June 1990
• Docket Number: No. 89-257,89-257
• Citation: 302 Ark. 547,792 S.W.2d 301
• Parties: Randy N. SMITH and Frankie J. Smith, Appellants and Cross-Appellees, v. MRCC PARTNERSHIP and Morrison Family Partnership, Appellees and Cross-Appellants.
• Court: Arkansas Supreme Court

Page 301

792 S.W.2d 301

302 Ark. 547

Randy N. SMITH and Frankie J. Smith, Appellants and Cross-Appellees, v. MRCC PARTNERSHIP and Morrison Family Partnership, Appellees and Cross-Appellants.

No. 89-257.

Supreme Court of Arkansas.

June 25, 1990.

C. Richard Crockett, Melody L. Noble, Little Rock, for appellants and cross-appellees.

Joe Calhoun, Little Rock, for appellees and cross-appellants.

TERRY M. POYNTER, Special Chief Justice.

Four individuals, the appellees, comprising MRCC Partnership ("MRCC"), owned 641.5 acres of unimproved land in Pulaski County, Arkansas. MRCC granted an option to purchase the land to Real Estate Central Development Corporation ("RECD"), which subsequently exercised its option by purchasing 240 acres of the land. RECD then re-sold numerous separate tracts of the 240 acres to individuals in smaller parcels, including a ten-acre tract to Randy N. Smith and Frankie J. Smith, the appellants.

RECD entered into two contracts with the Smiths, the first on September 18, 1981, reciting a purchase price of $19,000.00, and $1,900.00 downpayment and the balance of $17,100.00, interest at 9 1/2% per annum until due and at 10% thereafter and monthly payments beginning November 1, 1981.

Following a five-year period of default, a second contract was executed between the Smiths and RECD. Both contracts were written on identical pre-printed forms and related to the same ten-acre tract. The second contract was executed on or about October 27, 1986. It recited a total purchase price of $27,526.00, a downpayment of $3,000.00, and balance of $24,526.00. The second agreement was backdated to September 21, 1981. The first agreement had been dated September 18, 1981. A special "typed in" paragraph on an otherwise preprinted form stated: "THIS CONTRACT VOIDS ALL PREVIOUS CONTRACTS AND IS THE ONLY OUTSTANDING CONTRACT ON LOT 10, FERNCLIFF HEIGHTS, PULASKI COUNTY, AR. CONTRACT DATED 9-18-81 IS A VOID CONTRACT."

The Smiths had made no payments on the first contract after the downpayment. They had taken possession of the property in 1981 and learned that appellees' partners, rather than RECD, appeared to be the record owners of the property.

MRCC then became involved in litigation with RECD. That litigation was settled. As part of the settlement, the Smiths' contract was assigned, together with several others, from RECD to MRCC. MRCC had no knowledge of the facts surrounding the execution of the second contract.

MRCC intitiated a lawsuit for unlawful detainer, seeking to establish its ownership and possessory rights in the property. The Smiths counterclaimed for an accounting, also pleading adverse possession, equitable conversion and usury, and moved to transfer to chancery. MRCC acquiesced in the transfer to chancery. In chancery, MRCC added an alternative prayer for foreclosure.

The chancellor held the contract to be a forfeitable executory land contract, forfeited the contract and gave MRCC judgment for $3,510.00, plus $9.00 per day after April 30, 1989, for rent from the date of the default on the contract. The Smiths appeal from that determination. The trial court also found the second contract to be an extension of the first and usurious, that the downpayment on the second contract constituted a payment of interest, that all other payments on that contract represented payments of interest, and that, thus, the Smiths had paid total interest of $5,340.00. She applied the double interest penalty of Amendment 60 to the Constitution of Arkansas and rendered judgment for the Smiths against MRCC for $10,680.00. From that judgment, MRCC has cross-appealed.

I. DIRECT APPEAL

We think the result in the direct appeal is dictated by a line of cases represented by our decision in Triplett v. Davis, 238 Ark. 870, 385 S.W.2d 33 (1964), and White v. Page, 216 Ark. 632, 226 S.W.2d 973 (1950), cited by the Court of Appeals in Abshire v. Hyde, 13 Ark.App. 33, 679 S.W.2d 214 (1984).

In White, supra, this court said:

We have many cases recognizing that a purchaser's rights under an executory contract affecting real estate may be forfeited pursuant to the contract without proceedings in law or in equity (citing cases).

The forfeiture language in the contract before us is virtually identical to that contained in the contract under consideration in Abshire, supra.

The Smiths do not challenge the rule of these cases. Instead, they offer a shopping list of reasons to avoid its application:

1. The Smiths argue that the document before the court is not an executory contract for the sale of land but a "bond for title." That issue, having not been raised in the trial court, will not be considered here. B.G. Coney Co. v. Radford Petroleum Equipment Co., 287 Ark. 108, 696 S.W.2d 745 (1985).

2. The Smiths suggest that MRCC has accepted the note (on the reverse side of the contract) as full payment of the contract price; that, thus, they hold the note as the debt secured by a vendor's lien on the property. The Smiths direct us to no proof of such intent in the MRCC. Moreover, the integration of the note and contract belies such intent. The express language of the note makes it a part of the contract. The terms of payment of the note cannot be determined without reference to the contract. Thus, we cannot say that the chancellor erred in refusing this argument.

3. The Smiths argue that MRCC did not properly deraign title at the trial. MRCC sought to prove title by the affidavit of a title company, which the Smiths insist was admitted over their objection. Actually, the objection was to the affiant's failure to give "the book and page of the entire chain of title." Faced with that objection, we believe that the trial court was correct in determining that the affidavit should be admitted and that the missing information should be considered. The admissibility of evidence is within the sound discretion of the trial court. Delta School of Commerce, Inc. v. Wood, 298 Ark. 195, 766 S.W.2d 424 (1989). We find no abuse of discretion.

4. Finally, the Smiths ask this court to apply the doctrine of equitable conversion by contract. Almost universally adopted by the courts, though criticized as a useless but harmless fiction, this doctrine permits a court of equity, in certain circumstances, to consider an interest in real property as having been converted into an interest in personal property and vice versa. See, generally, Comment, Equitable Conversion by Contract, 7 Ark. Law Rev. 45 (1952). The equitable rights and obligations of the parties to such a contract are generally summarized as follows: The entire interest of the vendor in the land is naked legal title, which he holds as security for the payment of the purchase price, subject, however, to an obligation to convey to the purchaser. His legal title is, of course, still real property, but his beneficial interest, including the security interest which equity attaches to the right to receive the purchase money, is personalty. The purchaser, on the other hand, has a beneficial interest in the land itself plus the obligation of the vendor to convey legal title to him. The rights of the vendor are, in equity, considered personal property, and the correlative rights of the purchaser are considered real property.

Typically, this device has been applied to aid in the determination of issues of risk of loss, the relative rights of the various parties involved in decedents' estates, and the rights of creditors of the vendor and vendee in the property of each. The Smiths have cited us to no case, and indeed we find none, in which this otherwise handy fiction has been applied to construe a contract such as the one before the court. To do so would effectively delete the forfeiture clause and effectively rewrite the contract entered into between the parties. We have historically refused to rewrite contracts. See Three States Lumber Company v. Bowen, 95 Ark. 529, 129 S.W. 799 (1910).

Aside from these contentions, the appellants also argue that:

1. The trial court should have forced MRCC to elect between the remedy of determination of the contract and foreclosure. MRCC had first asserted the right to determine the contract by filing the unlawful detainer action and then by amendment, after the case was transferred to chancery, to seek foreclosure in the alternative. An essential element to an election of remedies argument is the availability of both remedies. Williams v. Westinghouse Credit, 250 Ark. 1065, 468 S.W.2d 761 (1971). It thus appears that the Smiths alternatively take inconsistent positions: i.e., that foreclosure is the only proper remedy, on the one hand, and that the chancellor should have required the appellees to elect between that remedy and a remedy they argue was not available, on the other. Under the circumstances, we cannot say the chancellor erred.

2. It is inequitable for the court to give MRCC both determination of the contract and rent for holding the property after the breach of the contract. The short answer is that both remedies were provided by the contract. Again, we decline to rewrite the contract. Curry v. Commercial Loan and Trust Co., 241 Ark. 419, 407 S.W.2d 942 (1966).

Neither did the court err in refusing to award the Smiths damages for the improvements they allegedly made on the property. Arkansas Code Ann. § 18-60-213 (1987) requires one entitled to recover for such improvements to meet two tests: 1) he must believe himself to be the owner of the property and 2) he must hold under color of title. The Smiths cited Black's Law Dictionary, 4th Edition, defining "color of title" as "the appearance, semblance or simalcrum of title; a writing on its face professing to pass title but which does not, either through want of title in the grantor or defective mode of conveyance."

Neither test was met. Both Randy and Frankie Smith testified that they considered RECD to be the owner. The contract under which the Smiths were in possession did not...