author: Marion S. Gill, Special Justice.

text:
    FEDERAL EXPRESS CORPORATION and NORTH AMERICAN CAR CORPORATION v. Walter SKELTON, Commissioner of Revenues, Department of Finance and Administration, State of Arkansas
    78-79 & 78-83
    578 S.W. 2d 1
    Opinion delivered February 26, 1979
    (In Banc)
    [Rehearing denied April 2, 1979.]

      Paul F. Henson and Frank L. Watson of Waring, Cox, James & Allen, Memphis, Tenn., for appellants.

      James R. Eads, Jr., Robert G. Brockmann, Joseph V. Svoboda, Barry E. Coplin and H. Thomas Clark, Jr., by: Jack East III, for appellee.
   Marion S. Gill, Special Justice.

This case is a sequel to Skelton v. Federal Express Corporation, 259 Ark. 127, 531 S.W. 2d 941 (1976). Reference is made to that decision for the relevant facts concerning Federal Express Corporation. Following the decision of this Court in the foregoing case, but before the mandate was filed with the Pulaski Chancery Clerk, on February 16, 1976, the Governor signed into law Act 1237 of 1975, Extended Session, the provisions of which constitute the subject matter of this controversy. By said Act the Arkansas Compensating Tax Act, Ark. Stats. 84-3105(a) was amended to read as follows:

Section 1. (a) There is hereby levied and there shall be collected from every person in this State a tax or excise for the privilege of storing, using or consuming, within the State, any article of tangible personal property, after the passage and approval of this Act (§ 84-3101 — 84-3128), purchased for storage, use or consumption in this State at the rate of three percent (3%) of the sales price of such property. This tax will not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this State until the transportation of such article has finally come to rest within this State or until such article has become commingled with the general mass of property of this State. This tax shall apply to the use, storage or consumption of every article of tangible personal property, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured within the State of Arkansas or are available for purchase within the State of Arkansas, and irrespective of any other condition. Provided however, that the tax levied in this Act shall not apply to aircraft, aircraft equipment, and railroad parts, cars, and equipment or to tangible personal property owned or leased by aircraft, airmotive or railroad companies brought into the State of Arkansas solely and exclusively for (i) refurbishing, conversion or modification within this State and is not used nor intended for use in this State, and the presence of such tangible personal property within this State shall not be construed as storage, use or consumption in this State for this Act, if such aircraft, aircraft equipment, and railroad parts, cars, and equipment or tangible personal property, is removed from this State within sixty (60) days from the date of the completion of such refurbishing, conversion, or modification, or (ii) storage for use outside or inside the State of Arkansas regardless of the length of time any such property is so stored in the State of Arkansas. If any such property is subsequently used in the State of Arkansas, the tax levied by this Act shall be and become applicable to the property so used in Arkansas. Provided further, that nothing in this subsection is intended to exempt from taxation any materials used or services furnished in the refurbishing, conversion, or modification of such property in this Slate which is subject to the Arkansas Gross Receipts Tax. (Emphasis added)
Section 2. The General Assembly hereby determines that it was not the intent of Act 487 of 1949 (Ark. Stats. §§ 84-3101 — 84-3128), as amended, to impose the compensating use tax upon aircraft, aircraft equipment, and railroad parts, cars and equipment, or to any tangible personal property owned or leased by aircraft, air-motive or railroad companies, as provided in Section 5(a) of Act 487 of 1949, as amended, and as classified by this Act, and any claim that the State of Arkansas now has for collection of compensating use taxes upon any such aircraft, aircraft equipment and railroad parts, cars and equipment, or to tangible personal property owned or leased by aircraft, airmotive, or railroad companies brought into the State of Arkansas solely and exclusively for refurbishing, conversion, or modification shall not be collected, whether the same is pending in the Revenue Services Division of the Department of Finance and Administration or is pending and unpaid as a result of any court litigation or court decision of this State, it being the intent of the General Assembly that the State of Arkansas should not pursue collection of any claim now pending or the execution of any court order with respect to any such claim for the collection of compensating use taxes upon such property. Provided, however, that no person shall have a claim against the State of Arkansas for any compensating use tax paid to the State of Arkansas on or before the effective date of this Act with respect to such tangible persona! property.

On August 9, 1977, after the remand in the foregoing case to the Pulaski Chancery Court, the Commissioner of Revenues filed an “Amended Petition for Supplemental Relief” and challenged the constitutionality of Section 2 of Act 1237 of 1975. Federal Express Corporation demurred to this petition on the grounds that the Court lacked subject matter jurisdiction and that the Commissioner lacked the capacity to challenge the constitutionality of a legislative enactment. The Pulaski Chancery Court held that the Commissioner had the necessary authority to raise the constitutional issue involved, that Section 2 of Acts 1237 of 1975 violates Art. 12, Section 12, of the Constitution of Arkansas, and awarded judgment to the Commissioner pursuant to the mandate of this Court.

Appellant, North American Car Corporation, hereafter referred to as N A C, is a Delaware corporation authorized to transact business in Arkansas. It is primarily engaged in the business of leasing various types of railroad cars to railroad companies. In order to maintain its railroad cars in proper working condition N A C operates a repair facility in Texarkana, Arkansas. N A C maintains an inventory of repair parts (consisting primarily of railroad car wheels and axles) at its Texarkana facility to make the necessary repairs to railroad cars when needed. Ninety per cent (90%) of the wheels and axles installed upon roalroad cars repaired at Texarkana are wheels and axles which have been removed from used cars. The remaining ten per cent (10%) are purchased by N A C outside of Arkansas and brought to the Texarkana facility as needed and are the subject of this action. Following the assessment of the Compensating Use Tax on parts in question, N A C instituted an action for a declaratory judgment in the Chancery Court of Pulaski County, and, among other things, alleged Appellee’s assessments to be violative of Art. XVI, Section 13, Constitution of Arkansas in that the property upon which the assessment was made had been exempted, or was not subject to the Compensating Use Tax by reason of Section 2 of Act 1237 of 1975. Appellee alleged that Section 2 of Act 1237 was unconstitutional. The Chancellor found the assessment to be valid; and that the Commissioner had the “standing” to raise the constitutional issue asserted; that Section 2 of Act 1237 was unconstitutional as being violative of Section 2 of Art. 4, Section 12 of Art. 12 and Amendment 14 of the Constitution of Arkansas.

From the Chancellor’s decrees in the foregoing cases, Federal Express and N A C bring this appeal. On joint motion of the parties these cases have been consolidated due to similar issues of law presented in both cases. For reversal Appellants contend:

I. Appellee, in his capacity as Director for Revenue, is charged with the administration of the act in question and lacks the requisite standing or authority to challenge its constitutionality.
II. Section 2 of Act 1237 of 1975, extended session, constitutes a valid exercise of legislative power under Article 12, Section 12, of the Constitution of Arkansas.
III. Section 2 of Act 1237 of 1975, extended session, constitutes a valid exercise of legislative power within the limitations imposed by the 14th Amendment of the Constitution of The United States.
IV. Section 2 of Act 1237 of 1975, constitutes a valid exercise of legislative power under the provisions of Article 4, Sections 1 and 2 of the Constitution of Arkansas.
V. The replacement parts were not purchased for “storage, consumption or use” in Arkansas.
VI. The railroad replacement parts were purchased for resale and therefore exempt from the tax.
VII. The replacement parts are exempt from the use tax because such property is exempt from tax under the Arkansas Gross Recepits Tax Act.
VIIII. Act 1237 of 1975 exempts railroad parts from the Use Tax Act.
IX. Act 1237 is prospective as to North American Car because no use tax was assessed against it until after Act 1237 was signed into law.

Appellants first assert that the Appellee has no standing or authority to challenge the constitutionality of a legislative enactment. This question is one of first impression for this Court. We recognize the general rule to be that public policy would prohibit an executive branch official from challenging a legislative act based upon his interest as the official charged with administering the statute. However, there is a logical exception to this rule which allows a public officer to question the constitutionality of a legislative enactment where public rights have matured and public interest is involved. Mower Board of Commissioners v. Board of Trustees of P.E.R.A., 136 N.W. 2d 671 (Minn. 1965); Fulton Foundation v. Wisconsin Department of Taxation, 109 N.W. 2d 285 (Wis. 1961); Blue Earth County Welfare Department v. Cabellero, 225 N.W. 2d 373 (Minn. 1974); Wachusett Regional School District Committee v. Erickson, 228 N.E. 2d 62 (Mass. 1067).

In at least four previous instances, this court has held that an officer of the executive branch cannot be forced to comply with the provisions of an unconstitutional enactment of the State Legislature. Little Rock & Fort Smith Ry. v. Worthen, et al, 46 Ark. 312 (1885); Writ of error dismissed, 120 U.S. 97, 30 L. Ed. 588; Hodges v. Dawdy, 104 Ark. 583, 149 S.W. 656 (1912); Rison et al v. Farr, 24 Ark. 161 (1865); Eason v. State, 11 Ark. 481 (1851). The above cases establish the right of an executive official to disobey an unconstitutional enactment of the General Assembly. If he has the right to disobey an unconstitutional enactment, he should have the right to question the constitutionality of a statute where the public interest is involved. In Fulton Foundation v. Wisconsin Dept. of Taxation, 108 N.W. 2d 312 (Wis. 1961), the Supreme Court of Wisconsin denied that the Wisconsin Revenue Department had the necessary standing to question the constitutional validity of a particular tax exemption statute. On rehearing, however, the Wisconsin high court reversed this position and gave the following reasons:

“In view of the forceful and persuasive arguments advanced by the attorney general in the brief filed by the department in support of its motion for rehearing, we have reconsidered our original holding that a question of whether a particular tax exemption denies the equal protection of the laws, is not of great public concern.
Such original determination had been motivated by the view that, while the granting of a particular tax exemption by the legislature might be of particular interest to other taxpayers to whom the exemption was not made applicable, it was not of great interest to the public at large. Upon further reflection we are convinced such issues should be held to present a question of great public interest. This is because the extending of special privileges by way of discriminating tax exemptions, which deny the equal-protection-of-the-laws requirement of the Fourteenth Amendment, have a tendency to undermine the faith of citizens in the integrity of their state government. Therefore, we withdraw that part of the original opinion which determined that the equal-protection-of-the-laws issue was not of great public concern, and now hold that the department should be permitted to raise such constitutional issue.
There is a further reason of policy for holding that the department should be permitted to raise this particular issue of constitutionality. This is that unless the department is permitted to do so there is little likelihood that any taxpayer will. The situation is different with respect to the enactment of a statute imposing a new tax which denies the equal protection of the laws. There the constitutional issue is very likely to be raised by the taxpayer against whom an attempt is made to assess and collect the tax.”

As will be noted in the points discussed below, Appellee has raised certain constitutional provisions under which he is the most proper and logical party to assert their violation by the act in question.

Therefore, we hold that a public official may question the constitutionality of a legislative enactment where public interests or public rights are involved, as distinguished from individual rights, and no enabling legislation is necessary. Further, we hold the requisite public rights and public interest to exist in this case.

We find no merit in Appellants’ contentions II, III and IV. Section 2 of Act 1237 of 1975 prohibits Appellee (an executive branch official) from collecting from certain specified taxpayers use taxes which accrued under the 1949 Act and prior to the enactment of this Act. Art. 12, Section 12, of the Constitution of Arkansas, provides:

“Except as herein otherwise provided, the State shall never assume or pay the debt or liability of any county, town, city, or other corporation whatever, or any part thereof, unless such debt or liability shall have been created to repel invasion, suppress insurrection or to provide for the public welfare and defense. Nor shall the indebtedness of any corporation to the State ever be released or in any manner discharged save by payment into the public treasury. ” (Emphasis added)

The courts of other states have been unanimous in holding that a law or ordinance which attempts to release a tax liability, obligation or indebtedness violates provisions of their constitutions. Ollivier et al v. City of Houston, 54 S.W. 943 (Tex. 1900); Community Public-Service Company v. James et al, 167 S.W. 2d 588 (Tex. 1942); Werner v. Riebe et al, 296 N.W. 422 (N.D. 1941); Fontenot, Director of Revenues v. Hurwitz-Mintz Furniture Co. et al, 7 So. 2d 712 (La. 1942); Graham Paper Co. v. Gehner et al, 59 S.W. 2d 49 (Mo. 1933); State v. Pioneer Oil and Refining Co. et al, 292 S.W. 869 (Tex. 1927); City of Louisville v. Louisville Ry. Co., 63 S.W. 14 (Ky. 1901); Daniels v. Sones, 157 So. 2d 626 (Miss. 1962); Sloan v. Calvert, 497 S.W. 2d 125 (Tex. 1973); Smith v. State, 420 S.W. 2d 204 (Tex. 1967); Ivester v. State ex rel. Gillum, 83 P. 2d 193 (Okla. 1938). As the Texas Court stated in Smith v. State, supra:

A tax that has been levied and has become a liability matured under a tax statute is an indebtedness or obligation within the meaning of this provision of the Constitution.

We hold a matured tax claim to be an “indebtedness” within_the meaning and context of Article 12, Section 12, of the Arkansas Constitution, and that Section 2 of Act 1237 is in violation of this provision of the Arkansas Constitution.

The act in question also violates Amendment 14 to the Constitution of Arkansas, which provides:

“The General Assembly shall not pass any local or special act. This amendment shall not prohibit the repeal of local or special acts.”

In Whittabker v. Carter, 238 Ark. 1074, 386 S.W. 2d 498 (1965), we held that an enactment violates Amendment 14 when it is retrospective in nature so as to exclude persons who would otherwise be subject to the operation of the enactment.

Section 2 of Act 1237 operates retrospectively to include within its operation only those delinquent taxpayers who have failed and refused to pay the tax. Those who have paid the tax are excluded from the operation of the law simply because they paid the tax. The exclusion of those who were attempting to comply with the law at the time the tax matured, in effect, penalizes them because of their compliance.

Also, we find that Section 2 of Act 1237 violates Section 2, Article 4 of the Constitution of Arkansas, which provides:

No person, or collection of persons, being one of these departments (Legislative, executive and judicial), shall exercise any power belonging to either of the others, except in instances hereinafter expressly directed or permitted. (empnasis added)

Thus, tí e Constitution of Arkansas provides specifically that the legislature may not exercise a judicial function in any case not expressly authorized by the Arkansas Constitution. We find no provision, and no such provision has been cited, in the Arkansas Constitution which authorizes the legislature to retroactively annul a decision of this court involving matters of public interest. Certainly, the General Assembly has the power to prospectively amend a statute, and threrby render a prior judicial decision interpreting that statute inapplicable, but not retrospectively as in the case before us. In Sidway v. Lawson, 58 Ark. 117 (1893) this Court held:

The legislature cannot, by the enactment of a retrospective statute, exercise a power in its nature clearly judicial. It is prohibited from doing so by the constitution. The powers of the government are divided into three distinct departments, the legislative, executive and judicial; and every “person or collection of persons, being one of these departments, is prohibited from exercising any power belonging to either of the others,” except wherein it is expressly directed ot permitted by the constitution, (emphasis added)

Our government is composed of three separate independent branches: legislative, executive and judicial. Each branch has certain specified powers delegated to it. The legislative branch of the State government has the power and responsibility to proclaim the law through statutory enactments. The judicial branch has the power and responsibility to interpret the legislative enactments. The executive branch as the power and responsibility to enforce the laws as enacted and interpreted by the other two branches. The “Separation of Powers Doctrine” is a basic principle upon which our government is founded, and should not be violated or abridged. Section 2 of Act 1237 reads in part as follows:

Section 2. The General Assembly hereby determines that it was not the intent of Act 487 of 1949, as amended, to impose the compensating use tax upon aircraft, aircraft equipment, and railroad parts, cars and equipment, or to any tangible personal property owned or leased by aircraft, airmotive or railroad companies, as provided in Section 5 (a) of Act 487 of 1949, as amended..... (emphasis added)

Section 5 of Act 1237 states in part:

Section 5. Emergency. It is hereby found and determined by the General Assembly that it was not the intent of Act 487 of 1949, as amended, to impose the compensating use tax upon aircraft, aircraft equipment, and railroad parts, cars and equipment, or to tangible personal property owned or leased by aircraft, airmotive or railroad companies, brought into this State solely and exclusively for (i) the purpose of refurbishing, conversion, or modification or (ii) for storage pending shipment for use outside of the State of Arkansas regardless of the length of time any such property is stored in the State of Arkansas, that recent court decisions have construed said Act 487 of 1949, as amended, to impose and require the collection and payment of compensating use taxes upon such property; and that the immediate passage of this Act is necessary to clarify the legislative intent and to provide that any claim the State of Arkansas may now have outstanding or which is due the State of Arkansas as a result of the court decisions for the collection of any such compensating use tax upon aircraft, aircraft equipment, and railroad parts, cars, and equipment, or to tangible personal property owned or leased by any aircraft, air-motive or railroad companies.

The relevant provisions of Act 487 of 1949, the Arkansas Use Tax Act of 1949, were interpreted by this Court in Skelton v. Federal Express Corporation, 259 Ark. 127, 531 S.W. 2d 941 (1976). Sections 2 and 5 of Act 1237 are a clear attempt by the 1975 General Assembly to interpret a law enacted by the 1949 General Assembly after this Court has interpreted and applied that law. We think this violates the Separation of Powers principle. The legislature can prospectively change the tax laws of this state, within constitutional limitations, but it does not have the power or authority to retrospectively abrogate judicial pronouncements of the courts of this State by a legislative interpretation of the law. The 1975 legislature cannot state what the 1949 legislature intended when it enacted Act 487 of 1949; such interpretation falls exclusively within the province of the judicial branch. For the 1975 legislature to declare the intent of a prior legislature and make the declaration retroactive so as to affect an interpretation already rendered by the courts is an abuse of legislative power which violates the Separation of Powers Doctrine. Richardson v. City of Jefferson, 134 N.W. 2d 528 (Ga. 1965); State ex rel. Norton v. Van Camp, 54 N.W. 113 (Neb. 1893); Carolina Glass Co. v. State, 69 S.E. 391 (S.C. 1910); Richardson v. Hare, 160 N.W. 2d 883 (Mich. 1968); Walker v. United States, 83 F. 2d 103 (8th Cir. 1936); Road Builders, Inc. of Tennessee v. Hawes, 187 S.W. 2d 287 (Ga. 1972).

In addition to the preceding points for reversal, NAG also raised points V through IX, which are matters of statutory construction.

The Arkansas Compensation Tax Act (Ark. Stat. Ann. Section 84-3105 [a]) provides the following:

There is hereby levied and there shall be collected from every person in this State a tax or excise for the privilege of storing, using or consuming, within the State, any article of tangible personal property, after the passage and approval of this Act [§§ 84-3101 — 84-3128], purchased for storage, use or consumption in this State at the rate of three per centum (3%) of the sales price of such property. This tax will not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this State until the transportation of such article has finally come to rest within this State or until such article has become commingled with the general mass of property of this State. This tax shall apply to the use, storage or consumption of every article of tangible personal property, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured within the State of Arkansas or are available for purchase within the State of Arkansas, and irrespective of any other condition.

The stipulation of the parties reflects that the items upon which the use tax has been assessed are railroad car parts kept in inventory at Texarkana until needed by N A C to replace work or broken parts on existing railroad cars owned by N A C. These acts constitute sufficient “use” and “storage” within Arkansas to support the Appellee’s assessment. Skelton v. Federal Express, supra; Flying Tiger Line v. State Board of Equalization, 157 Cal. App. 2d 85, 320 P. 2d 552 (1958); Pacific Telephone and Telegraph Company v. Gallagher, 306 U.S. 812, 59 S. Ct. 396, 83 L. Ed. 595 (1939). Installation of the parts in the railroad cars would be a taxable “use” because it is an exercise of a right or power over tangible personal property incident to the ownership of the property. Skelton v. Federal Express, supra. Further, the parts were retained in inventory for an average of 132 days, which constitutes “storage” as that term is used in tiis Act. Following their storage, the parts were not subsequently “used” outside this State since the parts were installed in N A C’s cars in Arkansas. The wheels and axles which are the subject of this litigation are new wheels and axles purchased from vendors outside of Arkansas and shipped to Arkansas for the purpose of being installed in N A C’s railroad cars being repaired. The stipulated facts clearly indicate that the parts in question were purchased by N A C for “storage, use or consumption” in this State as those terms are defined in Ark. Stats. Ann. Section 84-3104.

We find no merit to Appellant’s contention that these replacement parts were purchased for resale and therefore are exempt from the tax. The term “sale” is defined by Ark. Stats. Ann. Section 84-3104(1) as “any transaction whether called leases, rentals . . .”. N A C leases its railroad cars to railroad companies and it claims an exemption from the tax by virtue of these leases. To establish its claim that the repair parts were purchased for “resale” it must show that the repair parts were purchased outside this state, that it is regularly engaged in the business of reselling the goods purchased, and that the parts were purchased for resale. The railroad cars were sold or “leased”, but the parts in question were not. The threshold question is whether the items purchased (and taxed) are intended for “resale” as that term is defined in Ark. Stats. Ann. Section 84-1902(c). Hervey v. International Paper Company, 252 Ark. 913, 483 S.W. 2d 199 (1972). We think not. In Hervey v. Southern Wood Box, Inc., 253 Ark. 290, 486 S.W. 2d 65 (1972), a similar argument was made to this Court. In that case wooden cases were purchased by Coca Cola Bottling Company and used to transport beverages to its customers. Coca Cola claimed the boxes to be exempt but this Court upheld the tax assessment against Coca Cola because the boxes were intended for Coca Cola’s own use and not sale. In that case this Court said:

We do not interpret the broad statutory definition of a sale to include every transaction in which there is a transfer of possession, for a consideration. Ark. Stat. Ann. § 84-1902(c). The statute must be read as a whole. If the reference to a transfer of possession were applied literally in every instance, absurd results would follow. For instance, a company engaged in renting automobiles would not be required to pay a sales tax upon its purchase of cars, because it would be buying them for resale. Similarly, a company selling butane gas in heavy iron bottles would be reselling the bottles, even though its customers were required to return them. It is our duty to give the statute a reasonable construction, not an absurd one. (emphasis added)

Under the holdings of this case the repair parts were consumed and used by N A C in its business and not “resold” within the definition of that term as used in the Use Tax Act or the Gross Receipts Tax Act.

In point IX for reversal, N A C contends that Act 1237 of 1975 is prospective as to it and not retroactive, as in the case of Federal Express Corporation. The use tax assessments pertaining toNAC are for two audit periods, from November 1, 1970, through February 28, 1973, and from March 13, 1973, through March 31, 1975. As previously stated, this Act was signed into law on February 16, 1976. N A C argues that no “claim was pending” at the time the Act became law, because proper “Notices of Assessment” had not been given at that time. First, it does not appear that the issue relating to the validity of the Notices of Assessment was raised in the lower Court, and, therefore, cannot be raised for the first time on appeal. Second, we hold that the assessments due for the periods involved were matured and payable (notwithstanding the status of the “Notice of Assessments”), so far as they relate to this case, at the time the Act became law, and, therefore, we hold the Act to be retrospective as to these periods and not prospective as contended by N A C. The State has a claim for taxes from the date the taxes are due and payable by applicable law. Smith v. State, supra. Ark. Stats. Ann. Section 83-3109(a) provides that the use tax is “due and payable to the Commissioner monthly on or before the fifteenth day of each month”, and subsection (b) requires each person covered by the law to report and remit the applicable tax on or before the fifteenth day of the month for the prior month’s taxable purchases. Thus, so far as it relates to this case, the claim of the State of Arkansas matured on the sixteenth day of every month for the prior month’s taxes during the period in question.

The 1975 Amendment to Act 1237 exempts from the operation of the tax certain specified property that would otherwise come within the operation of the taxing statute. N A C contends (Point VIII) that the 1975 Amendment exempts all railroad parts. The Appellee contends that the 1975 Amendment to this Act extends only to railroad parts owned or leased by railroad companies. Because of the decisions of this Court pertaining to the other issues raised herein, this final contention of N A C is not relevant to the taxes involved in this case and would relate only to future assessments. N A C does not qualify and cannot be considered a railroad company. However, we see no necessity to decide the question as to whether the exemption enacted by the 1975 Amendment to Act 1237 extends to all “railroad parts” or only railroad parts “owned or leased by ** railroad companies.” This question was not decided by the lower Court and this issue is not properly before this Court.

Affirmed.

Byrd, J., dissents.

Hickman, J., not participating.


source: Caselaw Access Project

author: Dan M. Burge, Special Justice.

license: Public Domain

text:
    INDEPENDENCE SAVINGS & LOAN ASSOCIATION v. CITIZENS FEDERAL SAVINGS & LOAN ASSOCIATION, HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, POCAHONTAS FEDERAL SAVINGS & LOAN ASSOCIATION, and ARKANSAS SAVINGS & LOAN ASSOCIATION BOARD
    78-110
    577 S.W. 2d 390
    Opinion delivered February 26, 1979
    (In Banc)

      Highsmith, Gregg, Hart & Vinson, by: John C. Gregg, for appellant.

      Friday, Eldredge & Clark, by: Hermann Ivester; Roger W. Giles; and Crouch, Blair, Cypert & Waters, by: James B. Blair and William M. Clark, Jr., ¡for appellees.
   Dan M. Burge, Special Justice.

This is an appeal from the judgment of the Independence County Circuit Court affirming the decision of the Arkansas Savings and Loan Association Board, hereinafter referred to as “The Board,” denying the application of Appellant, Independence Savings and Loan Association, for permission or authority to establish and operate a branch office in Jonesboro, Arkansas.

Appellant was organizaed and received its original state charter to open a savings and loan association in Batesville, Arkansas, in June of 1973. It obtained approval for a branch in Ash Flat in February of 1975, and a second branch in Newport in October of 1975. This application for its third branch to be located in Jonesboro, was filed in January of 1976. Home Federal Savings and Loan Association and Citizens Federal Savings and Loan Association, both of Jonesboro, and Pocahontas Federal Savings and Loan Association opposed or protested the application. Pocahontas filed an application for a branch office in Jonesboro with the Federal Home Loan Bank Board in January of 1976, which application was approved, and its branch office is now open.

After taking voluminous testimony (a 1290 page record which includes the petitions, answers to interrogatories, testimony of 26 witnesses, detailed economic reports and numerous exhibits) the Board, in a 2 to 1 decision (one member being absent and with the chairman not voting), denied the application finding (1) that there was not a public need for the proposed branch; (2) that the volume of business in the area is not such as to indicate a successful operation; and (3) that the operation of the proposed branch office would unduly harm existing savings and loan associations or other financial institutions. The Board made 46 separate findings of underlying facts in support of its three findings.

Appellant asserts or relies on the following points for reversal:

(1) The Board’s decision, based on the entire record, as affirmed by the Circuit Court, is not supported by substantial evidence.
(2) The Board’s decision, as affirmed by the Circuit Court is arbitrary, capricious and characterized by an abuse of discretion.
(3) The Circuit Court erred in reviewing only the evidence which supported The Board’s decision.
(4) The Board’s Order denying the application is in violation of Arkansas Statutes Annotated Sec. 5-710 (b).

As we view the entire record, there is obviously conflicting evidence. Some of The Board’s 46 specific findings of underlying facts are very weak and may not support its conclusion. However, the weakness or elimination of some of these supportive underlying findings does not destroy the foundation for The Board’s decision. Even though we may have reached a different conclusion or decision had this matter been before us de novo, we cannot substitute our choice for that of The Board’s by weighing the evidence between two conflicting views. We reaffirm the Substantial Evidence Rule relating to Savings and Loan Association Board’s Orders whereby The Board’s decision will be affirmed or upheld if supported by substantial evidence. In determining whether or not the findings are supported by substantial evidence:

“ — we consider [all] the evidence with all reasonable inferences deducible therefrom in the light most favorable to [The Board’s action.] — Whether the evidence of Appellee or the Appellant weighs more heavily is not a consideration.”

First State Building & Loan Association, Mountain Home, Arkansas v. Arkansas Savings & Loan Association Board and Home Savings & Loan Association, 261 Ark. 482, 549 S.W. 2d 274 (1977), and Northwest Savings and Loan Association, et al v. Fayetteville Savings and Loan Association, et al, 262 Ark. 840, 562 S.W. 2d 49 (1978), First Federal Savings and Loan Association of El Dorado v. Union Savings and Loan, 257 Ark. 199, 515 S.W. 2d 75 (1974). Heber Springs Savings and Loan Association v. Cleburne County Bank, 240 Ark. 759, 402 S.W. 2d 636 (1966).

We have in numerous decisions relied heavily upon the principle that administrative agencies are better equipped than Courts, by specialization, insight through experiences and more flexible procedures to determine and analyze underlying issues . . . [which is] the principal basis for the limited scope of judicial review of administrative action and for the refusal of the Court to substitute its judgment and discretion for that of the administrative agency. Northwest Savings and Loan Association, et al v. Fayetteville Savings and Loan Association, supra, and Terrell Gordon v. Gordon L. Cummings, et al, 262 Ark. 737, 561 S.W. 2d 285 (1978).

Appellant’s proposed service area consists of Craighead County, which is presently served by three savings and loan associations located in Jonesboro and six commercial banks, four of which are located in Jonesboro. These banks operate 24 separate home offices and branches within the service area. All three associations filed protests to Appellant’s application and representatives testified in opposition thereto. The banks did not file any protest.

Edward H. Cherry, President and Chairman of the Board of the Bank of Northeast Arkansas, testified that the six banking institutions were all in heavy, vigorous and even ferocious competition with each other and the existing savings and loan associations for both savings and loans; that he had never seen a city that had as many financial institutions per capita as Jonesboro; that there was no need for another savings and loan assocition; that another savings and loan would not generate any new savings; that the existing associations and banking institutions were adequately serving the needs of the area; that a loss of 10% of savings to a new financial institution would jeopardize the survival of his bank; and that if another association was permitted to open a branch office within the area it will split the business and dilute it to the point that the existing associations and financial institutions would suffer undue harm. Without going into detail concerning his specific testimony in support of the foregoing conclusions, we find that same did constitute substantial evidence in support of The Board’s findings.

Thirty-two realtors and home builders indicated by way of testimony and/or petition that there was not a public need for another association, that existing associations were meeting the needs of the public for both savings deposit facilities and credit or loan sources. Not one local realtor, home builder or representative of existing financial institutions in the service area testified in support of Appellant’s petition. Various witnesses testified as to services being rendered by existing associations and that which would be rendered by the Appellant, if approved. Appellant will not provide any new service that one or the other associations do not now furnish, nor will it provide more convenience to its depositors or borrowers and so the services and convenience would remain basically the same. Economic experts testified in behalf of both sides. Appellant’s expert was from Northwest Arkansas, whereas Appellees’ expert was from the local service area. He had made several economic studies within the area for other clients or purposes. No one witness in the home construction, real estate or banking business testified or indicated in any manner that there was a need for the proposed branch or that it should be granted.

The credibility of these witnesses and the proper weight to be accorded evidence presented is the prerogative of The Board and not that of the reviewing court. The Board has a superior position to that of the reviewing court in as much as it is in a position to observe the witnesses and consider their demeanor. The Board justifiably could and probably did simply find that local realtors, builders, developers, bankers and economists testimony was more plausible than that of Appellants’ witnesses and thereby entitled to more weight. Northwest Savings and Loan Association, et al v. Fayetteville Savings and Loan Association, supra.

Savings and loan associations are authorized and chartered for two purposes: To operate deposit facilities for savings purposes and to meet the credit needs for home loans in its service area. Appellant’s track record clearly indicates that it has, in the past, met the first needs by providing deposit facilities for savings in the areas where it serves; but clearly it has failed to meet the credit needs for local home building and other developments and has, in fact, been siphoning off funds from the areas where it serves by investing same in federal securities. This has resulted in a profitable operation, but at the sacrifice of the credit needs of its service areas.

When we first review the numerous underlying findings of The Board, we find the evidence in support of The Board’s decision to be clearly substantial.

Appellant next argues that The Board’s decision, as affirmed by the Circuit Court, is arbitrary, capricious and characterized by an abuse of discretion. In Northwest Savings And Loan Association, et al v. Fayetteville Savings And Loan Association, et al, supra, we quoted from First National Bank of Fayetteville v. Smith, 508 F. 2d 1371 (8th Circuit 1974) as follows:

“The ‘arbitrary and capricious’ standard of review is a narrow one ... its scope is more restrictive than the ‘substantial evidence’ test which is applied when reviewing formal findings made on a hearing record . . . ‘Administrative action may be regarded as arbitrary and capricious only where it is not supportable on any rational basis’. . . Something more than mere error is necessary to meet the test... To have administrative action set aside as arbitrary and capricious, the party challenging the action must prove that it was ‘wilful and unreasoning action’, without consideration and a disregard of the facts or circumstances of the case ...” (Emphasis added)

We would unduly lengthen this opinion to review all the evidence in this record. It will suffice to state, as we did in the Northwest Savings and Loan opinion that we do not find The Board’s action to be arbitrary or capricious because, in our judgment, evidence contained in this record cannot be classified as being based upon suspicion, surmise, implications or plainly incredible evidence.

While some of the conflicting evidence in the record clearly supports the establishment of Appellant’s branch, on the whole, the decision of The Board is sustained by substantial evidence. By substantial evidence, we mean valid, legal and persuasive evidence. Where such evidence exists, it automatically follows that the decision of The Board cannot be classified as unreasonable or arbitrary. Bockman v. Arkansas State Medical Board, 229 Ark. 143, 213 S.W. 2d 826 (1958); Arkansas Pollution Control Commission v. Coyne, 252 Ark. 792, 481 S.W. 2d 322 (1972).

Appellant’s third point urges us to find that the Circuit Court erred in reviewing only the evidence which supported The Board’s decision. The Judgment of this Trial Court specifically states that from the record of the proceedings before The Board, the briefs of the parties and the arguments of counsel it found that there was substantial evidence to support the findings and decision of The Board. The reviewing court did not consider just evidence supporting The Board’s finding alone. In our review of the entire record, we find many facts and circumstances which would constitute substantial evidence upon which The Board could have based its decision, even though fair-minded men might reasonably disagree. These facts do not show any abuse of discretion or statutory duty on the part of The Board of reviewing Circuit Court.

For its final point, Appellant argues that the forty-six separate specific findings of facts totaling ten pages are so lengthy, redundant and over burdensome as to be a violation of Ark. Stat. Ann. § 5-710(b), which requires The Board’s final decision to be concise and explicit and, therefore, same makes its Order arbitrary and an abuse of The Board’s discretionary powers. As stated in Arkansas Savings And Loan Association Board, et al v. Central Arkansas Savings and Loan Association, 256 Ark. 846, 510 S.W. 2d 872, this statutory requirement is primarily for the benefit of the reviewing courts and a failure to comply with the statute, if such a failure exists, is a minor and inconsequential matter. To boil a 1,090 page record down to ten pages is not an easy task by any stretch of the imagination.

For the reasons hereinbefore stated, the judgment of the Circuit Court upholding The Board’s decision to deny Appellant’s application to open a branch office in Jonesboro is hereby affirmed.

Byrd, J., concurs.

Holt, J., not participating.


author: George Rose Smith, Justice,

text:
    Dennis CORDES v. STATE of Arkansas
    CR 78-141
    577 S.W. 2d 609
    Substituted opinion on rehearing delivered March 5, 1979
    (In Banc)

      Erwin L. Davis, for appellant.

      Bill Clinton, Atty. Gen., by: Catherine Anderson, Asst. Atty. Gen., for appellee.
   George Rose Smith, Justice,

on rehearing. Upon separate charges of delivering a controlled substance, the appellant Dennis Cordes, then 26, was twice tried by jury in 1974, was found guilty at each trial, and received a 10-year and a 15-year sentence. His original appeal from the first judgment was dismissed on motion of his attorney, who concluded that there was no reversible error. In 1976, upon a petition for postconviction relief, we gave Cordes permission to apply to the trial court for relief upon specified points. After that, an appeal to this court resulted in a remand for further proceedings. Cordes v. State, decided in an unpublished opinion on September 19, 1977. After a full evidentiary hearing, the record of which, with its exhibits, exceeds 600 pages, the trial judge denied relief. In this court three points for reversal are listed, but they can best be discussed as four points.

First, it is contended that Cordes’s retained attorneys were guilty of ineffective representation in failing to call Cordes’s codefendant, Bob Phillips, as a witness at each trial. At the first trial Phillips was a defendant and could not have been compelled to testify. He was not a defendant at the second trial, having pleaded guilty, but Cordes’s attorney at that trial, Jeff Duty, testified at the hearing below that he interviewed Phillips before the trial and concluded that Phillips’s testimony would not have been at all beneficial to Cordes. Phillips himself testified at the hearing below, but, despite being assisted by many leading questions, Phillips did not testify that, in the language of the petition for postconviction relief, “he was in possession of the controlled substance and that petitioner [Cordes] knew nothing of what was going on. ” To the contrary, Phillips equivocated, saying that he set up the sales and did most of the talking (with the purchaser). He admitted that Cordes, who accompanied him and drove the car to meet the undercover officer who made the buys, knew he had the drugs and was going to sell them. Phillips testified that Cordes did not receive any of the money from the two sales, but he would have received some from a third sale that fell through. Phillips had told Cordes’s attorney that “[w]e were both in it. We were supposed to get the money.” The record falls decidedly short of showing ineffective assistance of counsel within the test that we have adopted. Sheppard v. State, 255 Ark. 40, 498 S.W. 2d 668 (1973).

Second, ineffective assistance of counsel is also argued on the basis of counsel’s failure to introduce medical records about Cordes’s hospitalization following a motorcycle accident in February, 1974, and counsel’s failure to call as witnesses two doctors, Dr. Sisco and Dr. Johnson, who treated Cordes at that time. The petition for postconviction relief asserted that the medical records would have been pertinent to show Cordes to be mentally incompetent and that the two doctors would have testified that Cordes was mentally incompetent prior to the commission of the offenses. Neither statement is established by the record. The hospital records would have showed that Cordes sustained a severe brain injury in the accident, but they did not show that he was mentally incompetent. Neither of the doctors was a psychiatrist, and there is no showing that they would have testified as the petition alleged. In fact, mental incompetency was not even an issue at the first trial, and at the second trial the defense of insanity was submitted to the jury upon conflicting expert testimony.

According to this record, neither of the doctors who treated Cordes for his injuries would have testified that he was mentally incompetent as a result of the motorcycle accident. In addition, there was much other evidence that could have been adduced to show the details of Cordes’s hospitalization and its effect upon Cordes. We cannot say that the attorneys’ failure to introduce the records or to call the two doctors to the stand demonstrates ineffective assistance of counsel. To the contrary, both the doctors — Dr. Johnson orally and Dr. Sisco by letter — indicated to counsel that their testimony would be restricted to their actual treatment of the injuries.

Third, the only really serious question presented by the record is whether, at the two trials, Cordes was in such a state of mental incompetency as to be, in the language of the petition for postconviction relief, “of little or no assistance to his attorney in the preparation of petitioner’s defense. Thus petitioner was incompetent to stand trial.”

The evidence on this point is so voluminous that we shall attempt only to give a summary sufficient to show why it cannot be said that the -..rial judge’s findings are clearly against the preponderance of the evidence.

The expert testimony is hopelessly in conflict. Cordes’s principal expert witness, Dr. Ragsdill, testified that as a result of the mote :ycle accident Cordes had an organic brain syndrome as a consequence of the brain injury. He explained the syndrome as a defect in Cordes’s functioning which prevented him from meeting the ordinary requirements of living. His diagnosis was that Cordes was “non-psychotic, with a psychotic element at times.” He believed that Cordes had been unable to assist his attorneys at his trials, in September and December of 1974, and that, as of the postconviction hearing in March, 1978, if Cordes were to be tried again the next day “he would not be any assistance in his own defense.” Cordes also introduc'd the testimony that was given in his behalf by Dr. Finch at the second trial, when insanity was a defense. Dr. Finch found that Cordes was with psychosis at that time. Attorney Duty testified that Dr. Finch made one of the best witnesses he had ever seen. At that trial, however, Dr. Finch’s opinion was contradicted by that of Dr. Holman, a State Hospital psychiatrist, who testified that Cordes was without psychosis. It may be noted that the jury, after hearing both sides, rejected the defense of insanity and returned a verdict of guilty.

At the hearing below, the State’s principal expert witness was Dr. Rosendale, who participated in one of the three State Hospital examinations (in 1974, 1976, and 1978) of Cordes, ail of which found him to be without psychosis. Dr. Rosendale was of the opinion that Cordes was in full contact and that he could have supplied complete information if he had so desired. He described Cordes’s organic brain syndrome as mild. He thought that Cordes could concentrate upon the tests given him if he wanted to. He indicated that in walking past the cells he had observed Cordes carrying on with the other patients, talking with them, kidding with them, and causing no problems whatsoever.

It is significant, in weighing the testimony, to note that many witnesses thought that Cordes’s condition at the time of the postconviction hearing in 1978 was the same as it had been at his trials in 1974. Dr. Ragsdill testified that “I don’t think that there is any reason in my mind to suspect that his mental condition was any different than it is now; so if he is psychotic now then he was psychotic then. ” Attorney Spears, who represented Cordes at the first trial, testified that Cordes exhibited about the same language ability and understanding patterns when Spears was representing him as he did on the witness stand at the postconviction hearing. Attorney Duty testified that he considered Cordes to be mentally competent both at his second trial and on the date of the postconviction hearing. Judge Cummings, who presided when Cordes testified at his second trial and again when Cordes testified at the postconviction hearing, stated in his findings: “I heard the trial before, and there is no difference in his testimony, manner, appearance, et cetera.”

Thus Cordes’s ability to assist his attorney at the post-conviction hearing could be regarded by the trial judge as having a direct relation to his ability to assist his attorneys at his two trials. In that view, the record is replete with proof that Cordes was able to assist his counsel at the postconviction hearing. There are handwritten letters in the record, from Cordes to Judge Cummings and to the circuit clerk, having to do with his case, which show beyond question that he is articulate in correspondence. At the postconviction hearing he testified at length. Even allowing for the court reporter’s inability to reflect in the record Cordes’s possible hesitations and stuttering, his testimony reveals no substantial inability to communicate. Several times Cordes’s attorney asked for a short intermission so that he could confer with his client (with an ensuing line of questioning). Cordes himself spoke up from time to time. He reported having overheard the prosecutor mention Dr. Rosendale in a telephone conversation during the trial. He asked permission to question Dr. Ragsdill about a matter. He argued intelligently and at length with Judge Cummings about what he considered to be the judge’s hostile attitude toward him (we find no such hostility on the part of the judge). He reminded his counsel to bring up the matter of jail time, with his alertness in that respect resulting in the judge’s immediately announcing that Cordes would be given credit for 93 days of jail time. The record as a whole indicates that Cordes actively assisted his attorney during the hearing.

We do not imply that the question of Cordes’s mental condition at his trials is free from dispute. To the contrary, there is persuasive evidence on each side of the issue. It is impossible, however, for us to say that the findings of the trial judge, who presided at both trials, who corresponded with Cordes from time to time, and who observed his conduct at the protracted postconviction hearing, are clearly against the preponderance of the testimony.

Fourth, it is argued perfunctorily that counsel, prior to the appeal that was ultimately dismissed, should have discussed with Cordes the possible defense of entrapment as a point to be urged on appeal. There is no evidence whatever of entrapment, and the point, as argued, presents nothing for review under the Dixon rule. Dixon v. State, 260 Ark. 857, 545 S.W. 2d 606 (1977).

The judgment is affirmed and the petition for rehearing denied.


author: George Rose Smith, Justice.

text:
    STATE of Arkansas v. Thurman ABERNATHY
    CR 78-146
    577 S.W. 2d 591
    Opinion delivered March 5, 1979
    (In Banc)

      Bill Clinton, Atty. Gen., by: Ray Hartenstein, Asst. Atty. Gen., for appellant.

      Jack Holt, Jr. and Junius Bracy Cross, Jr., for appellee.
   George Rose Smith, Justice.

The appellee, Thurman Abernathy, was charged with having murdered Linda Edwards on August 22, 1976. (The record leaves some doubt as to the year, whether it was 1976 or 1977, but apparently 1976 is correct, for the information was sworn to and filed in July of 1977.) The case has not yet been tried. This is an appeal by the State from an interlocutory order holding that certain evidence to be adduced by the State at the trial would be inadmissible. See Rule 36.10 of the 1976 Rules of Criminal Procedure.

Defense counsel filed a preliminary motion asking that the testimony of several witnesses for the State be declared to be inadmissible, primarily under the hearsay rule. The State contended that the testimony is admissible under Rule 803 (3) of the Uniform Rules of Evidence. Ark. Stat. Ann. § 28-1001 (Supp. 1977). After a hearing the court held all the testimony proffered by the State to be inadmissible.

We begin our discussion with Rule 803 (3) itself, which provides:

Rule 803. Hearsay rule. — Availability of declarant immaterial. — The following are not excluded by the hearsay rule, even though the declarant is available as a witness:
*****
(3) Then existing mental, emotional, or physical condition. A statement of the declarant’s then existing state of mind, emotion, sensation, or physical condition, such as intent, plan, motive, design, mental feeling, pain, and bodily health, but not including a statement of memory or belief to prove the fact remembered or believed unless it relates to the execution, revocation, identification, or terms of declarant’s will.

This rule was copied from Federal Rule of Evidence 803 (3), which in turn was evidently designed to continue in effect the decisions of the United States Supreme Court in Mutual Life Ins. Co. v. Hillmon, 145 U.S. 285 (1892), and Shepard v. United States, 290 U.S. 96 (1933). In Hillmon the court upheld the admissibility of letters written by one Walters, who wrote in one letter: “I expect to leave Wichita [Kansas] on or about March the 5th, with a certain Mr. Hillmon. ” The court held that the letters were admissible to show that Walters had the intention of leaving Wichita and that therefore a body found several days later at Crooked Creek, Kansas, might have been that of Walters. From the opinion:

The letters . . . were competent, not as narratives of facts communicated to the writer by others, nor yet as proof that he actually went away from Wichita, but as evidence that, shortly before the time when other evidence tended to show that he went away, he had the intention of going, and of going with Mr. Hillmon, which made it more probable both that he did go and that he went with Hillmon, than if there had been no proof of such intention.

At common law we reached a similar conclusion, holding to be admissible the decedent’s statement on the day he was killed that he had started to Ravana to see the defendant about a bill of lumber. Sullivan v. State, 171 Ark. 768, 286 S.W. 939 (1926), clarified in Hill v. State, 255 Ark. 720, 502 S.W. 2d 649 (1973).

In Shepard, the second decision by the United States Supreme Court, it was held that a statement about a past event, “Dr. Shepard has poisoned me,” was not admissible. The court explained the distinction:

Declarations of intention, casting light upon the future, have been sharply distinguished from declarations of memory, pointing backwards to the past. There would be an end, or nearly that, to the rule against hearsay if the distinction were ignored.
The testimony now questioned faced backward and not forward. This at least it did in its most obvious implications. What is even more important, it spoke to a past act, and more than that, to an act by someone not the speaker.

It will be seen that Uniform Rule 803 (3) states the substance of the rules laid down in Hillmon and Shepard.

In the case at bar the information alleged that Abernathy murdered Linda Edwards with a blunt instrument on August 22. Apparently the State meant to make its case by circumstantial evidence. The State sought to show, among other things, that Linda had expressed her intention to see Abernathy on the preceding night, before her death. To that end, at the hearing on defense counsel’s preliminary motion to declare the testimony inadmissible, the State proffered the testimony of Sara Edwards (no relation to the victim). The trial judge held all of Sara’s testimony to be inadmissible.

Sara testified that she had known Linda for four years. During the last three of those years Linda had repeatedly said she was in love with Abernathy (who was married) and had a sexual relationship with him. Before her death Linda told Sara that she was pregnant and thought Abernathy was the father of her child. Linda said that Abernathy wanted her to have an abortion, but she didn’t want to. Linda had three appointments for an abortion, but she canceled all of them and finally said that the baby had just as much right to live as any other baby.

Sara testified that Linda told her, on the Thursday before her death, that she and Thurman Abernathy had had a big fight at a parking lot. Sara went on to testify that she saw Linda twice on the final Saturday night before Linda’s death. We quote her proffered testimony, which begins with the first of the two visits on Saturday night.

[Linda] was very mad, very mad, but she was calm, cool mad type, determined mad is I guess the way you would describe it. And she said that she was going to get it straightened out one way or the other that night.
Q. Straightened out with who?
A. With Thurman, and she said, “If he doesn’t satisfy me I will walk right up to the front door and tell Judy about it.” She said, “He is either going to divorce her and marry me or I am going to see a lawyer Monday morning and have my name changed to Abernathy.” She was very determined. I tried to talk her out of it. I told her she was a foolish girl for doing this. I said, “Be careful.” And she kept saying, “Thurman won’t hurt me. He won’t hurt me.” I said, “Linda, that’s like backing a tiger into a corner.” So she left and came back around eleven o’clock. I was asleep. My children were still up watching T.V. She was in my bathroom, and my kids came and got me and told me she was in there. So, when I walked in, I said, “Have you talked to Thurman?” She said, “Yeah, I did.” She said that he said he had a couple of people to take care of and then he said, “I knew this was going to happen. I knew this was going to happen.” He said, “When I get these people taken care of I will see you.” I said, “Linda, be careful. Whatever time you get through talking to him, you call me.” And that’s the last time I talked to her.

For the most part Linda’s quoted declarations are inadmissible as being statements of her memory about the past, not statements of an existing state of mind. In that category fall the statements that her relationship with Thurman was sexual, that she thought him to be the father of her child, and that she had canceled appointments for an abortion. Also inadmissible, as hearsay, were Linda’s repetitions of what Abernathy had said, such as his statement that he would see Linda after he had taken care of the two people.

In a proper setting, Linda’s statement that she was pregnant might be admissible as a statement of physical condition. But in the absence of proof indicating that Thurman might have been the father of Linda’s child, the bare statement would not be relevant to any issue in the case. It would be futile for us to speculate about the possibilities that might arise if the case is brought to trial. There is, of course, also the possibility that the evidence, although relevant, might be inadmissible under Uniform Rule 403.

In any event, the trial court should have sustained the admissibility of Linda’s statement that she was going to meet Thurman that night. That statement falls within Rule 803 (3) and is in fact similar to the proof found admissible in Hillmon. That the statement may also show that Thurman was going to meet Linda does not, under the majority view, render it inadmissible. See People v. Alcalde, 24 Cal. 2d 177, 148 P. 2d 627 (1944). On the other hand, Linda’s statements when she visited Sara for the second time that night are not admissible, as they were primarily repetitions of what Thurman had said, not statements about Linda’s own state of mind.

For the error indicated the judgment is reversed and the cause remanded for further proceedings.

Holt, J., not participating.


text:
    James Ray RENTON v. STATE of Arkansas
    CR 79-34
    577 S.W. 2d 595
    Opinion delivered March 5, 1979
    (In Banc)

      John B. Baker, Public Defender, for petitioner.

      Steve Clark, Atty. Gen., by: Robert J. DeGostin, Jr., Asst. Atty. Gen., for respondent.
   George Rose Smith, Justice.

The petitioner was charged by information with capital murder in the death of a police officer in Washington county. Our constitution has this provision with respect to bail: “All persons shall, before conviction, be bailable by sufficient sureties, except for capital offenses, when the proof is evident or the presumption great.” Ark. Const., Art. 2, § 8 (1874). The petitioner applied to the circuit court for admission to bail, but the court denied the application on the ground that the proof was not evident nor the presumption great. The present petition for habeas corpus was filed here to review the trial court’s decision.

The circuit judge, in holding that the burden of proof rested upon the accused, followed our decisions in such cases as Smith v. State, 256 Ark. 425, 508 S.W. 2d 54 (1974), holding that the filing of the information raises such a presumption of the accused’s guilt as to cast upon him the burden of affirmatively showing that he is entitled to bail. The petitioner argues that our former position can no longer be maintained in the light of the Supreme Court’s decision in Gerstein v. Pugh, 420 U.S. 103 (1975).

We must agree that the petitioner is right. In Gerstein the question was whether an arrested person could be detained in custody for an extended period without a judicial finding of probable cause for the detention, merely because the prosecuting attorney had filed an information charging the accused with a crime. The court held that the prosecutor’s information, standing alone, does not satisfy the Fourth Amendment requirement that no warrant of arrest be issued except upon probable cause, that requirement being a matter for prompt judicial determination.

The principle laid down in Gerstein controls this case. That is, an accused person cannot be indefinitely detained in custody merely because he has been charged by information (as distinguished from a grand jury indictment) with the commission of an offense. The burden is not on the accused to demonstrate his right to freedom; it is on the State to demonstrate its right to keep him in confinement. It follows that, in a capital case, the State must assume the burden of proving that bail should be denied because the proof is evident or the presumption great. Otherwise the accused is subjected to the difficult task of proving the negative, when it is the State which has instituted the prosecution and should fairly have the responsibility for defending its position when bail is sought.

The petition is granted, and the cause is remanded to the circuit court for a hearing upon the petitioner’s application for admission to bail, with the burden resting upon the State to prove its assertion that the petitioner is constitutionally precluded from being released on bail because the proof is evident or the presumption great.


author: Frank Holt, Justice.

text:
    Samuel E. JONES and Blanche JONES v. James P. SEWARD et al
    78-219
    578 S.W. 2d 16
    Opinion delivered March 5, 1979
    (Division II)
    [Rehearing denied April 2, 1979.]

      Dale W. Finley, Ike Allen Laws, Jr. and William S. Swain, for appellants.

      Richard Peel, for appellees.
   Frank Holt, Justice.

This appeal results from a decree holding that appellants and the appellees had agreed orally upon the location of a boundary line between their respective properties. Appellants contend the court’s finding was against the preponderance of the evidence in that the alleged agreement did not contain the necessary elements to make it a binding agreement and that no agreement was shown to have been made by appellant Blanche Jones.

In order for there to be a valid boundary line agreement, certain factors must be present: (1) there must be an uncertainty or dispute about the boundary line; (2) the agreement must be between the adjoining landowners; (3) the line fixed by the agreement must be definite and certain; and (4) there must be possession following the agreement. Bryson v. Dillon, 244 Ark. 726, 427 S.W. 2d 3 (1968); and Sherrin v. Coffman, 143 Ark. 8, 219 S.W. 348 (1920).

Appellants and Gerald Ledford were adjoining property owners for several years. When Ledford decided to sell his property, a dispute arose as to the true boundary. Ledford had two surveys made. He testified that appellant Samuel Jones was present at the latter survey and agreed that it would constitute the correct boundary line and Ledford could sell his property up to that line. Ledford was corroborated by the surveyor. Approximately a year later, Ledford sold his property to the appellees, using the agreed boundary as the true boundary line.

Even if we should agree with the appellees that the preponderance of the evidence establishes that (1) there was an uncertain or disputed boundary, (2) the line fixed by the agreement was made definite and certain by a survey, and (3) there was sufficient possession following the agreement, we cannot agree that the evidence is sufficient that appellant Blanche Jones, who jointly owns the property with her husband, agreed to the survey line as being the true boundary. It is true that in Priddy v. Wood, 245 Ark. 209, 431 S.W. 2d 744 (1968), we held without merit a wife’s contention that she made no agreement about a boundary line. However, in doing so, we observed that it was obvious from the wife’s testimony that she knew about the survey and about a garage being moved as a result of the survey. Further, we recognized that Ark. Stat. Ann. § 55-412 (Repl. 1971) provides that when a married woman permits her husband to have custody, control, and management of her separate property, there is a presumption he acts as her agent. We also said the arrangements for the sale of the property were apparently handled by her husband. He also secured the surveyor and assisted him. We do not consider that case controlling here.

In the case at bar there is a joint ownership of the property. There is no evidence that Mrs. Jones had ever permitted her husband to have the custody, control and management of any of her property. Neither is there any evidence that she was present during the survey, knew of its existence or acted in any manner indicating that she was in agreement that the survey constituted the agreed boundary. Since we hold that the true boundary line was not established by oral agreement, the issue remains unresolved. In this exceptional circumstance, we exercise our discretion and remand the cause without prejudice to either party to establish the true boundary line. Fish v. Bush, 253 Ark. 27, 484 S.W. 2d 525 (1972); Fulwider v. Woods, 249 Ark. 776, 461 S.W. 2d 581 (1971); and Arnett v. Lillard, 247 Ark. 931, 448 S.W. 2d 626 (1970).

Reversed and remanded.

We agree: Harris, C.J., and Fogleman and Hickman, JJ-


author: Darrell Hickman, Justice. John A. Fogleman, Justice,

text:
    Benjamin F. BARTON, et ux v. George E. PERRYMAN, et al
    78-169
    577 S.W. 2d 596
    Opinion delivered March 5, 1979
    (In Banc)

      Kenneth E. Suggs, for appellants.
    No brief for appellees.
   Darrell Hickman, Justice.

This is an appeal of a chancery foreclosure decree and judgment on a contract of sale. We find the decree must be reversed.

The sellers and appellees, George E. Perryman and others, had sold a house trailer and lot located in Perry County. The initial sale was to Vernon and Elizabeth Highfill in 1973. The sale was perfected by the execution of a Purchaser’s Agreement and promissory note which was prepared by the appellees calling for payment in monthly installments.

In 1974, the original Purchaser’s Agreement was assigned to the appellants, Benjamin and Connie Barton. The appellees consented in writing. In 1975, the Agreement was again assigned from the Bartons to Michael and Melissa Black using an identical assignment and consent form signed by the parties.

The trailer burned and it was discovered that there was no insurance. The appellees filed a foreclosure suit seeking a judgment against all of the purchasers and assignees for the balance due on the note and, after an agreed sale, a deficiency judgment was entered against these appellants and the Blacks.

The chancellor held that none of the parties had been released from their agreement to buy the property.

The appellants argue on appeal that the chancellor was incorrect because it was the intention of the parties that upon each assignment, the assignors were discharged, and the assignees were substituted in their place as a result of a novation. We agree with this argument and reverse the decree of the chancellor.

The chancellor, no doubt, relied upon the law that when rights are assigned and duties delegated, as in this case, the original obligor remains liable as a surety unless he is discharged by novation. Restatement of Contracts §160 (1932). However, an examination of the facts in this case leads us to conclude that it was the intention of the parties in this case that the Blacks be substituted as obligors in place of the Bar-tons, rather than merely added as additional debtors.

The original Purchaser’s Agreement was prepared by the appellees, who were not attorneys, and it is a form instrument. There are two relevant provisions, one which was added by the Perrymans and the other which was contained in the form instrument. The added clause, typed in by the Perrymans, reads:

Buyer agrees to reimburse seller for yearly insurance premiums in the event that seller must maintain insurance. Buyer also agrees that said mobile home shall not be removed from property without the written consent of seller.

The printed instrument contained a standard provision which reads as follows:

This AGREEMENT shall not be sold, transferred or assigned, nor shall said property be leased, without written consent of SELLER, and in the event of any sale, assignment, transfer or lease, without written consent, SELLER shall have the right to exercise the options hereinbefore provided in Paragraph 3. In the event of a sale, transfer or assignment of this AGREEMENT with SELLER’S written consent, the assignee or grantee shall succeed to all the rights and liabilities of BUYER, according to the terms of the assignment and consent to be attached hereto.

In 1974, when the appellants purchased the property from the Highfills, the Perrymans prepared an assignment and a consent, which we reproduce.

“Novation is the substitution by mutual agreement of one debtor, or of one creditor, for another, whereby the old debt is extinguished, or the substitution of a new debt or obligation for an existing one, which is thereby extinguished. ”

Riddick v. White, 194 Ark. 1010, 110 S.W. 2d 9 (1937). That intention need not be expressly declared, but may be found upon examining the surrounding circumstances. Home Life Insurance Co. v. Arnold, 196 Ark. 1046, 120 S.W. 2d 1012 (1938).

Like any other contract, a novation must be supported by consideration. Here the consideration was approximately $400.00 the Bartons paid the Perrymans, and an additional fee of $100.00 to the Perrymans for preparing the simple assignment and consent.

The Bartons testified that they were assured that there was insurance on the property and they would be billed for any insurance and taxes. The Perrymans produced evidence that the Highfills paid $26.67 as their pro rata share of the insurance. The Perrymans, of course, point to the provision in the original contract which holds the purchaser responsible for maintaining insurance. However, it was not disputed that the Perrymans never billed the Bartons for any insurance or taxes or took any steps to make certain that the property was insured at any time after the assignment to the Bartons. (The Bartons held the property from October 2, 1974, until June 17, 1975).

In 1975, the Bartons decided to sell the property to the Blacks for $1,000.00. Benjamin Barton sought the Perrymans’ consent and was told that it was the policy of the Perrymans to require new purchasers to buy some equity in the property because it prevented people from moving in and out. It was agreed that the Blacks would pay $1,000.00. However, at Perrymans’ insistance, $410.15 was paid directly to the Perrymans as equity. $100.00 was paid to the Perrymans for preparing an identical assignment and consent as we have reproduced herein. The Blacks paid the Bartons $500.00 and executed a note for $500.00 to the Bartons which was never paid.

The trailer burned and it was discovered that there was no insurance on the property and this lawsuit naturally resulted from that fire loss. While the assignments and consents did not expressly release the old purchaser, we have no difficulty in finding that it was the intention of the Perrymans to release the old obligations by accepting the new ones.

First, all of the instruments, none of which were recorded, were prepared by the Perrymans. The assignment, prepared by the Perrymans and consented to by them in writing, provided that the Bartons “do hereby sell, assign, transfer, and set over all their right, title and interest in and to the property” to the Blacks. There was no express assignment of the note but only of the Purchaser’s Agreement. We have said in a similar situation that a note and mortgage are inseparable. As assignment of the note carries the mortgage, while an assignment of a mortgage alone is a nullity. Bryant v. Easton Tire Co. 262 Ark. 731, 561 S.W. 2 79 (1978). Considering the language of the assignment, which seems to set over all rights and interest in the property, and the fact that the Perrymans in preparing the assignment and consent did not mention that the note was assigned, there would seem to be an uncertainty as to the liability imposed by these documents.

It is a rule of law that documents that contain ambiguities will be construed against the party who drafted them. Christmas v. Raley, et al, 260 Ark. 150, 539 S.W. 2d 405 (1976).

Next, the Perrymans, who were not authorized to practice law, in two instances charged a fee of $100.00 for the preparation of the simple but brief documents. In each instance they required the new buyer to pay equity to them in the property. The Bartons paid approximately $400.00 and the Blacks paid $410.15 to the Perrymans upon assignment.

Furthermore, there is the testimony of the Bartons that they were told that insurance did exist on the property and that they would be billed for any future insurance. While it was the buyer’s obligation to maintain insurance, the contract clearly provided that the sellers, who were the Perrymans under that document, could bill them for it. There was no effort on the part of the Perrymans to make certain that the property was insured.

One of the most important factors is that each time the Purchaser’s Agreement was assigned, the Perrymans required of the assignee a substantial payment of principal.

In summary, this is a case where the original seller chose to directly deal with each assignee requiring payment towards the principal due instead of remaining at an arms length distance from the transaction. Considering all the facts we have recited herein, there is no doubt there was a mutual agreement of the parties to release the Bartons of liability. Therefore, we reverse the decree of the chancellor.

Reversed.

Fogleman, J., dissents.

John A. Fogleman, Justice,

dissenting. I cannot join in the reversal of the chancery court’s holding that there was not a novation in this case. If there is a novation here, then I do not see how a seller of property of this type can require that assignment of a purchase agreement be approved by him and avoid a release of the original purchaser on his obligation when he approves. In order to show why I think the chancellor was right and the majority clearly wrong, it is necessary that I show the basis for my understanding of the doctrine of novation.

The various treatise writers have made general statements relating to what constitutes a novation and how a novation can be distinguished from a simple assignment of contractual rights and obligations. The following can be found in Corbin on Contracts, § 1301, p. 228:

Frequently an assignee of contract rights undertakes to perform the assignor’s duties also. This is not operative as a novation, since the assignor remains bound by those duties so long as his creditor does not accept the assignee’s new promise in lieu of the duty of the assignor. The creditor’s actually receiving a payment or other part performance from the assignee, knowing that he has undertaken to perform, is not an assent to a novation discharging the assignor unless the assignee’s performance is tendered not merely as a satisfaction pro tanto of the assignor’s duty but also on condition that the assignor shall be discharged from any further duty. In like manner, the creditor’s written expression of assent does not operate as a discharge of his debtor by novation where he has merely been notified that an assignment of contract rights has been made and that the assignee has assumed the performance of the assignor’s duties. Such an assumption merely gives to the creditor an additional security. His expression of assent does not go beyond this, unless the notice to which he assents is clearly a proposal for a substitution of debtors instead of a mere reasonable interpretation.

From Williston on Contracts, § 353, p. 815:

*** A novation is essentially a new contract whereby the creditor accepts the promise of a new debtor in lieu of the original debtor.
***
As to the elements essential to a novation, the courts have said:
The necessary legal elements to establish a novation are (1) parties capable of contracting; (2) a valid prior obligation to be displaced; (3) the consent of all parties to the substitution; and (4), lastly, the extinction of the old obligation and the creation of a valid new one.
A novation is not made out by showing that the substituted debtor agreed to pay the debt. It must appear that he agreed with the creditor to do so. Moreover, this agreement must be based on the consideration of the creditor’s agreement to look to the new debtor instead of the old. The creditor’s assent to hold the new debtor liable is therefore immaterial unless there is assent to give up the original debtor. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement.

And finally, the Restatement of the Law, Contracts, pp. 798 and 805, contains these statements at the sections indicated:

§ 424. DEFINITION OF NOVATION.
A novation within the meaning of the Restatement of this Subject is a contract that
(a) discharges immediately a previous contractual duty or a duty to make compensation, and
(b) creates a new contractual duty, and
(c) includes as a party one who neither owed the previous duty nor was entitled to its performance.
§ 428. NOVATION DISCHARGING DEBTOR BY THIRD PERSON’S ASSUMPTION OF DUTY ASSENTED TO BY CREDITOR.
Where a third person contracts with a debtor to assume, as an immediate substitution for the debtor’s duty, a duty to the creditor to render either the performance for which the debtor was previously bound, or some other performance, and the creditor agrees either with the debtor or with the third person to such substitution, there is a novation that discharges the original debtor and subjects the third person to a duty to the creditor.
Comment:
***
b. The creditor can effectively manifest agreement to the substitution either to the original debtor or to the third person. If the assent is manifested to the debtor, it amounts to a direct agreement with the debtor to discharge him in consideration of the substituted right offered by the agreement between the debtor and the third person. If the creditor’s manifestation of agreement is made to the third person it amounts to an agreement with the latter to discharge the original debtor in consideration of the new right. And since a creditor can discharge a debtor’s duty by accepting as satisfaction a third person’s promise or performance, the original debtor is immediately discharged. Nor can the discharge be disclaimed by him, since by virtue of his contract with the third person he has already assented to have the debt discharged in that way.

Arkansas cases on the subject of novation are not numerous; however, some of them could be of assistance in this case. First, novation, as an affirmative defense must be specifically pleaded, and the answer must allege the elements of a novation. Camfield Tires, Inc. v. Moseley, 253 Ark. 585, 487 S.W. 2d 268. The affirmative defense of novation must be pleaded either expressly or by unequivocal implication. Although the answer of the defendants does not appear to meet the requirements of Moseley, the brief in support of the defendants’ demurrer to the complaint of the plaintiff dealt with novation, so arguably, the issues of the alleged novation was raised.

There are at least two Arkansas cases which contain general statements concerning the elements of novation and the application of the defense. The first of these is Simmons National Bank v. Dalton, 232 Ark. 359, 337 S.W. 2d 667, where the trial court found that a novation existed on an action for a note to finance a car which had been traded to another, who agreed to make the payments on the note. Although it was conceded that the creditor was not aware of the assignment at the time it was made and did not agree to release the original debtor from liability, the appellee pointed to the fact that the creditor had attempted to collect from the assignee numerous times. This court found that the trial court erred in finding that there had been a novation. We emphasized the necessity for showing a clear and definite intention of the creditor to release the old debtor in order to sustain a defense of novation. The court made the following statements:

*** In that case [Elkins v. Henry Vogt Machine Company, 125 Ark. 6, 187 S.W. 663] this Court quoted with approval from 29 Cyc. 1130: “It is not essential that the assent to and acceptance of the terms of the novation be shown by express words to that effect, but the same may be implied from the facts and circumstances attending the transaction, and in the conduct of the parties thereafter. Such consent is not to be implied merely from the performance of the contract by the substitute, for that might well con sist with the continued liability of the original party . . . ” (Emphasis supplied.)
In a case of this kind the burden was on Dalton to show that he had been released by appellant Bank . . . “The burden was upon the defendant to prove that he had been discharged by a novation of the contract.” This statement relative to the burden of proof has been approved in many other decisions of this Court.
Our decisions and the text-writers appear to be uniform in holding that it is necessary to show an intent on the part of the creditor to release an old debtor and substitute therefor a new debtor. In Home Life Insurance Company v. Arnold, 196 Ark. 1046, 120 S.W. 2d 1012, this Court, in dealing with the same question, said: “. . . the effect of the novation is the intention of the parties.” (Emphasis supplied.) Likewise, at Pages 266 and 267 of Volume 39 Am. Jur., it is stated, among other things, that: “In order to effect a novation there must be a clear and definite intention on the part of all concerned that such is the purpose of the agreement.” (Emphasis supplied.) In Williston on Contracts, Volume 6, Revised Edition, at Page 5254, Section 1870, under the sub-title “Necessity for the assent of all the parties to a simple novation ” it is stated: “It is undoubtedly a commonplace in the discussion of novations that the assent of all the parties is necessary; and certainly ... no old debtor can be discharged without the creditor’s consent, ...” (Emphasis supplied.) Numerous cases therein are cited sustaining the above announcement.

And then, in Alston v. Bitely, 252 Ark. 79, 477 S.W. 2d 446, the court was presented with the argument that an extension agreement as to notes due and payable constituted a novation for one of the parties liable on the note originally. The court sustained the chancellor’s finding that a novation had not occurred. From the opinion:

In order to constitute a novation, there must be a clear and definite intention of the parties that such is the purpose of the agreement. [Citations omitted.] There must be an intention on the part of the creditor to release the original debtor. [Citations omitted.] The question to be determined is whether by the execution and delivery of the extension agreement, the parties clearly intended to extinguish the old debt and rely entirely on the new, or to keep the old debt alive and merely accept the new as new security or evidence of the debt. [Citation omitted.] The existence of this intention, if it is not expressly declared, must be decided from all of the circumstances in the case, including the subsequent conduct of the parties. [Citation omitted.] The issue is one of fact if there is any conflicting evidence or if the terms of the agreement are capable of more than one construction [Citations omitted.] We have said that the intention must be so evident as to leave no room for doubt. [Citations omitted.]
Where the intention to release an old obligation by acceptance of a new one is not expressly stated, one of the strongest indications of a contrary intention is the retention of the original evidence of debt by the creditor. [Citations omitted.] . . . It has been said that where a new note is not the obligation of all the parties liable upon the original note, there is no presumption that the former was given and accepted as a discharge of those liable on the latter. [Emphasis mine.]
Where there is a conflict in the evidence pertaining to the issue of novation, we will not reverse where we are unable to say that the decree of the chancery court was against the preponderance of the evidence. Norden v. McAllister, 207 Ark. 1011, 184 S.W. 2d 459. The chancellor’s opinion and the court’s decree constituted a finding of fact adverse to appellant on this issue. We cannot say that the preponderance of the evidence does not support the finding.

The chancellor specifically found that appellees accepted the assignments but did not release any of the defendants. On trial de novo, we cannot reverse this finding unless it is clearly against the preponderance of the evidence. See, Alston v. Bitely, supra.

I submit that the evidence in this case fails to support a novation in several respects. I would first point out that the question here is whether there was a novation when the Perrymans accepted the assignment by the Bartons to the Blacks. The assignment by the Highfills to the Bartons is not in issue. There is certainly nothing in any of the terms in the written instruments to show that the Bartons were released. There was never any submission to the Perrymans of any proposal that there be a substitution of debtors instead of a mere assumption of duty by the assignee. There is no evidence of the extinction of the old obligation and the creation of a valid new one. There is no evidence that the agreement by the Blacks with the Perrymans to pay the debt was based upon the consideration of the Perrymans to look to the Blacks instead of the Bar-tons, i.e., that the Perrymans assented to give up the Bartons as the old debtor. There is no evidence that the Perrymans discharged the previous contractual duty of the Bartons, or agreed to do so. To say the least, appellees did not meet their burden of showing a clear and definite intention on the part of the Perrymans to release the Bartons, i.e., one so evident as to put the matter beyond doubt. See International Minerals & Chemical Corp. v. Caplinger, 241 Ark. 1055, 411 S.W. 2d 526. And there was the strongest possible evidence to the contrary — the retention by the Perrymans of the original evidence of the debt of the Bartons. See Alston v. Bitely, supra.

In the very first case cited in the majority opinion, we followed the definition of novation, in our holding that there was not a novation, with this:

*** In Cockrill v. Johnson, 28 Ark. 193, there is this declaration of the law: “In the substitution of a new debt or obligation for an old one, which is denominated in the civil law a novation, the intention of the parties to that effect should be positively declared; or at least in whatever manner expressed, it should be so evident as not to admit of a doubt: in other words, a novation is not to be presumed unless the intention to that effect evidently appears.” See, also, Brewer v. Winston, 46 Ark. 163; Han son v. Louisiana Oil Refining Corp., 186 Ark. 331, 53 S.W. 2d 430. [Emphasis mine.]

I completely disagree with the majority’s statement (for which it cites no authority) that a payment on the original debt can be the consideration for a novation. Cf. Denman v. Bruce-Rogers Co., 190 Ark. 1098, 82 S.W. 2d 844. Most assuredly, a payment by the Bartons when the assignment was made to them cannot be a consideration for a novation substituting the Blacks for the Bartons as obligors; neither can the payment of a fee for preparing the document by which the assignment from the Bartons to the Blacks was made and the consent of the Perrymans was given. How, I ask, can the fact that an instrument evidencing the assignment was prepared by the Perrymans be evidence of intention to enter into a novation? Of course, it can’t; and if that fact is of any probative effect at all, it indicates that there was no intention to release the Bartons, because no mention is made of any release or substitution.

I also ask, what could the lack of assignment of the note have to do with the matter? Obviously, nothing, because a maker or obligor on the note can’t assign it. And to whom should the Perrymans have assigned it, if they wanted to hold the Bartons? What could they possibly have put about the assignment of the note into the assignment by the Bartons of the purchase contract to the Blacks? What uncertainty as to liability did this omission create? And what ambiguity is there to be resolved against the Perrymans? The statements in the assignment and consent are crystal clear. The courts cannot import an ambiguity into an instrument in order to resolve it against the draftsman. Looney v. Allstate Insurance Co., 392 F. 2d 401 (8 Cir., 1968); Bodcaw Oil Co. v. Atlantic Refining, 217 Ark. 50, 228 S.W. 2d 626; Jefferson Square v. Hart Shoes, 239 Ark. 129, 388 S.W. 2d 902; Inman v. Milwhite Co., 402 F. 2d 122 (8 Cir., 1968). The rule that language in a contract is to be construed most strongly against the party responsible for it is the last one to be applied by the courts, and then only when a satisfactory result cannot be reached by resort to other rules of construction. 17A CJS 224, Contracts, § 324.

What possible relevance could the failure of the Perrymans to insure the property or, not having exercised their option to do so, to bill the Bartons for it, have on the question of novation?

The requirement of a payment on the principal debt before consent to assignment was given would not constitute a novation, unless the payment was specifically made on condition that the assignor was to be released. See Denman v. Bruce-Rogers Co., supra. There is not one word of testimony that this was the case.

I am also unable to fathom the reasoning by which the unauthorized practice of law by the creditor would be of any probative value on the question of novation. Here’s another complete mystery to me: How can a seller (creditor) remain at arm’s length from a transaction relating to an assignment to which he must consent?

The fact-finding of a chancellor, who saw and heard the witnesses, should never be overturned upon such a flimsy basis.

Obviously, Í would affirm the decree.

       (The first buyers were never served. The Blacks did not appeal.)