Ward v. Worthen Bank & Trust Co., N.A., 84-150

• Decision Date: 21 December 1984
• Docket Number: No. 84-150,84-150
• Citation: 681 S.W.2d 365,284 Ark. 355
• Court: Arkansas Supreme Court
• Parties: Seth WARD and Sentry Sales & Service, Inc., Appellants, v. WORTHEN BANK & TRUST COMPANY, N.A., Appellee.

Page 365

681 S.W.2d 365

284 Ark. 355

Seth WARD and Sentry Sales & Service, Inc., Appellants, v. WORTHEN BANK & TRUST COMPANY, N.A., Appellee.

No. 84-150.

Supreme Court of Arkansas.

Dec. 21, 1984.

Rehearing Denied Jan. 28, 1985.

Barber, McCaskill, Amsler, Jones & Hale, Little Rock, for appellants.

Allen, Cabe & Lester, Little Rock, for appellee.

WILLIAM A. ECKERT, Special Chief Justice.

Prior to March 8, 1980, appellee Worthen Bank made six unsecured installment loans to appellant Ward, the loans being in connection with appellants' Datsun dealership. In November, 1980, appellant sold the dealership to Bart Roach Datsun, Inc., the sales agreement providing that the purchaser assume liability for the balance owed on the promissory notes to appellee and a note to Union Bank. Appellee bank provided separate financing to Roach and was aware of the loan assumption agreement, but did not release appellant from liability.

Appellee mailed installment notices to an address furnished by Roach, who made payments until July, 1982, when he encountered financial difficulties. Roach sold the agency for considerations including royalty of $75 on each Datsun/Nissan unit the purchaser sold for twenty years. This royalty was assigned by Roach to appellee bank and filed as a financing statement with the Secretary of State on August 6, 1982.

All notes assumed by Roach became delinquent in August, 1982. Union Bank demanded and received payment of its note from appellant in September, 1982.

Appellee had made secured loans to Roach, which, on default, were foreclosed. Appellant, having reacquired the right to possession of the premises leased to Roach, denied appellee access to conduct foreclosure sale until an agreement was made. Consideration for using the premises required the appellee convey to appellant certain furnishings and fixtures on the premises. The bank was given right to use the premises through September, 1982.

The agreement contains mutual releases of both parties, and provides:

"... The Wards agree that they will not constitute or institute involuntary bankruptcy proceedings against Bart Roach or Bart Roach Datsun, Inc., nor will they encourage, instigate or assist anyone else in such an endeavor."

Appellant was aware of the $75 royalty assignment when he made the rental agreement.

On October 19, 1982, appellee's officers discussed the several loans in default, including recognition that the royalty assignment held from Roach could be set aside as a preference should Roach become bankrupt within ninety days from its execution. A decision was made to be "mum" with reference to the loans.

On October 22, 1982, appellee's officer, by letter to Roach, wrote:

"... We have your copy of the letter from Webb Hubbell concerning your obligation to Seth Ward which amounts to some $25,000. It is our plan, and I recommend that it be your plan, that we do nothing about this, just don't pay anything and delay talking about it. I am going to send a copy of this to our attorney to ask him to see where we stand in his mind legally and if there is something beneficial discovered, I will tell you...

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We discussed the notes that are due us by Seth Ward, which amount to some $25,000 that we understand were assumed by you, but we were not informed and we did not accept any sort of a release of Seth. It is our plan to hold still on this for a while and work on Seth on getting these notes current come December time..."

Appellee bank made demand on appellant for payment of all notes on December 17, 1982. This action followed; appellant counterclaimed for utility costs incurred by appellee under the rental agreement.

The Trial Court, sitting as a jury, rendered judgment for appellee on its notes and on the counterclaim. Appellant was given judgment in his third party claim against Roach.

Appeal comes under Supreme Court Rule 29(1)(c).

Appellant argues that appellee's conduct, specifically its intentional deferment in making demand on appellant while perfecting its rights in the royalty assignment, creates an estoppel.

Absent a duty otherwise imposed, the holder of a note is under no obligation to notify the maker of any delinquency. The printed installment notes each contain the following provision:

"RIGHTS PRESERVED. You can delay or omit enforcing any of your rights at any time under this note without losing them in the future."

For appellant to establish estoppel, he has the burden, among other things, of proving:

Appellee had a duty to notify appellant.

Appellee failed to notify appellant.

Appellant relied upon such failure to receive notice in good faith.

Brixey v. Union Oil Company, 283 F.Supp. 353 (D.C.Ark.1968).

Appellant contends he would have sued both Roach and appellee had he known of the default in note payments and of the royalty assignment; however, appellant had stated on September 10, 1982, that he would be the last person to put Roach in bankruptcy, that he would take a judgment and wait for Roach to inherit money. Roach was substantially indebted to appellant. It was to appellant's interest that Roach not be discharged in bankruptcy.

Appellee's decision to delay collection procedure against appellants was made subsequent to the date of the rental agreement. That agreement, in any event, did not preclude appellant from suing Roach; it provided that appellant not have Roach declared bankrupt.

Appellant was not in a confidential relationship with appellee. He had the right to determine the current status of his note obligations both from Roach and from appellee. He was actively engaged in matters related to Roach's financial condition; he was represented by eminent counsel.

While appellee's decisions to be "mum", to withhold making demand on appellants, and advising Roach to withhold payment of his debts, is deficient in candor, such conduct is not actionable as a matter of law.

Failure to speak is the equivalent of fraudulent concealment only in circumstances involving a confidential relationship when a duty to speak rises where one party knows another is relying on misinformation to his detriment.

There are times when the law imposes a duty to speak rather than remain silent, when a failure to speak is the equivalent of fraudulent concealment. Berkeley Pump Co. v. Reed-Joseph Land Co., 279 Ark. 384, 653 S.W.2d 128 (1983):

"... But this rule is based on special circumstances not evident here, such as a confidential relationship, so that a duty to speak arises where one party knows another is relying on misinformation to his detriment. The general rule is to the contrary, and ordinarily, absent affirmative fraud, a party, in order to hold another liable in fraud ... must seek out the information he desires and may not omit inquiry and examination and then complain that the other did not volunteer information. (See 37 Corpus Juris Secundum, Fraud, § 15, p. 242 and Smith, "Law of Fraud", § 8 p. 18.) We find nothing in the abstract suggesting circumstances from which that rule of law might be found applicable. If fraud exists, whether affirmatively or by concealment, it ought not to be difficult to isolate and cite it ..."

The party asserting estoppel must prove it strictly, there must be certainty to every intent, the facts constituting it must not be taken by argument or inference, and nothing can be supplied by...