text:
    Ernest McELROY v. C.C. GRISHAM, Bill Doshier, & H.D. McCaleb, Individually and as Partners d/b/a/ BBS Company, a Partnership
    91-21
    810 S.W.2d 933
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991

      Stephen E. Adams, Ltd., by: Stephen E. Adams, for appellant.

      Adams <6 Nichols, by: Donald J. Adams, for appellee.
   Jack Holt, Jr., Chief Justice.

The appellant/cross-appellee, Ernest McElroy, initially filed suit in the Boone County Chancery Court requesting equitable relief in the cancellation of a warranty deed, option contract, and deed for sale, as well as the quieting of title to the real estate in question. These requests were predicated, in part, on Mr. McElroy’s allegations that the deed and contracts between him and the appellees/cross-appellants, C. C. Grisham, Bill Doshier, and H. K. McCaleb, individually and doing business as BBS Company, constituted a usurious scheme to loan money.

The chancellor found that the transaction was a usurious loan and that the deed from the appellant to the appellees “was in fact a mortgage” and issued his orders accordingly.

While appellant McElroy agrees with chancellor’s finding that the transactions amounted to a usurious loan, he contends, on appeal, that the chancellor erred: 1) in determining the amount of interest he paid; 2) in refusing to award twice the amount of interest paid; 3) in refusing to award him attorney’s fees; and 4) in awarding post judgment interest on the balance found due to the appellees.

On cross-appeal, the appellees contend that the chancellor erred in finding the transaction was a usurious loan and in denying their motion for summary judgment, in which they argued that a release signed by Mr. McElroy constituted a release and termination of the contract at issue.

We agree with the chancellor’s findings that the transaction was usurious but reverse and remand as to his calculation of interest paid and the award of a penalty. We affirm the trial court as to the appellees’ cross-appeal.

Mr. McElroy is engaged in the residential home construction business. In 1984 and 1985, he acquired a total of 104 acres of' property for which he paid $238,357. In addition, Mr. McElroy claims to have invested approximately $19,200 preparing the land for residential development.

By early 1987, Mr. McElroy was experiencing financial difficulties and contacted Mr. C. C. Grisham for help. He claims to have requested an initial loan of $100,000 from Mr. Grisham. This proposal was rejected, but, after lengthy negotiations, the parties agreed that Mr. McElroy would deed the property to Mr. Grisham and his partner, Mr. H. D. McCaleb, in exchange for $80,000. In addition, Mr. McElroy was to receive a contract for deed allowing him to repurchase the property for $120,000, of which $40,000 was to be paid in one year and the balance of $80,000 at the end of two years.

Mr. Grisham referred Mr. McElroy to Mr. Bill Doshier, an attorney, to complete the necessary legal work. Mr. Doshier was subsequently brought into the transaction as an equal partner with Mr. Grisham and Mr. McCaleb, which partnership was named BBS Company. At Mr. Doshier’s suggestion, the contract for deed was changed to an option contract and, on February 13, 1987, the parties executed a warranty deed, in which Mr. McElroy conveyed the property to the appellees, and an option contract, wherein Mr. McElroy was given one year to exercise his option to repurchase the property; $40,000 to be paid at the time of purchase and $80,000 to be paid within a total of two years, interest free. The appellees disbursed $80,000 to Mr. McElroy through an abstract and title company and required Mr. McElroy to obtain release of over $120,000 in liens against the property.

Mr. McElroy claims that in February, 1988, before the expiration of the option contract, he approached the partnership about exercising his option. This is disputed by the appellees who claim that Mr. McElroy allowed the option contract to expire. In either event, the parties disregarded the option contract and executed a contract for deed on March 1, 1988, in which Mr. McElroy agreed to pay $125,000 for repurchase of the property (less three lots to be retained by the “sellers”). This price was $5,000 more than the “option price”. Mr. McElroy was to pay $ 16,000 at closing and the balance of $ 109,000 in installments, at an annual rate of 10%, which was evidenced by a promissory note. The parties have stipulated that during the term of this agreement, Mr. McElroy made payments to the appellees total-ling $45,195.

In April, 1989, Mr. McElroy was informed by the appellees that he still owed over $86,000 on the debt. He filed suit in the Boone County Chancery Court shortly thereafter.

Following trial, the chancellor entered two opinion letters in which he held that “the underlying and real purpose of this transaction was a loan to plaintiff in the amount of $80,000, and that since it was a loan, under its terms, it exceeded the lawful rate of interest.” The court found that Mr. McElroy had repaid $45,195, of which $10,866 was interest, leaving $34,329 paid on the principal and $45,671 owing. This amount was offset by a penalty of $ 16,300, assessed against the appellees, which resulted in a final judgment of $29,371 in favor of the appellees. Mr. McElroy was ordered to pay the debt within 30 days of judgment or face foreclosure.

Since all the issues before us hinge on the central question of whether there was, in fact, a usurious loan, we address the appellees’ arguments on cross-appeal, first.

I. USURIOUS LOAN

Initially, we note that while we review chancery cases de novo, we recognize the superior position of the chancellor to weigh issues of credibility and therefore we do not reverse unless the chancellor’s findings are clearly erroneous. Taylor’s Marine, Inc. v. Waco Mfg., 302 Ark. 521, 792 S.W.2d 286 (1990).

In denying that the transactions amounted to a usurious loan, the appellees first contend that the documents were not usurious on their face. While it is true that, taken alone, the original warranty deed and option contract appear to be documents concerning only the sale of land, and no mention of a loan or obligation on the part of Mr. McElroy to repay the appellees is recited, these transactions call to mind an oft quoted maxim: “The law shells the covering and extracts the kernel. Names amount to nothing when they fail to designate the facts.” Sparks v. Robinson, 66 Ark. 460, 515 S.W. 460 (1899). In Sparks, we upheld the trial court’s conclusion that an absolute bill of sale of a sewing machine, coupled with an absolute right of redemption, amounted to nothing more than a mortgage with a usurious rate of interest.

Here, the chancellor found that the purported sale and option to repurchase were nothing more than a cloaking device to hide the true transaction—a loan in the amount of $80,000 to be repaid in two years, with interest totalling $40,000. Such a transaction has been historically recognized as one of several simple devices to evade Arkansas usury laws. See G. Collins and V. Ham, The Usury Law of Arkansas: A Study in Evasion, 8 Ark. L. Rev. 399 (1954).

The burden is upon the one asserting usury to show the transaction is usurious, and usury will not be presumed, imputed, or inferred where an opposite result can be fairly reached. Winkle v. Grand Nat’l Bank, 267 Ark. 123, 601 S.W.2d 559 (1980). The test, however, is not whether the “lender” intended to violate the usury laws, but whether the lender knowingly entered into a usurious contact intending to profit by the methods employed. See Id.; Davidson v. Commercial Credit Equip. Corp., 255 Ark. 127, 499 S.W.2d 68 (1973). Furthermore, it is unnecessary that both parties intend that an unlawful rate of interest be charged; if the lender alone charges or receives more than is lawful the contract is void. Superior Improvement Co. v. Mastic Corp., 270 Ark. 471, 604 S.W.2d 950 (1980) (decision under prior law).

The chancellor was faced with conflicting testimony throughout the trial in this case. He obviously found Mr. McElroy’s version of the events to be the more credible and, deferring to his advantage in observing the witnesses’ demeanor and in considering the evidence presented in the record, we cannot conclude that his decision was clearly erroneous.

Mr. McElroy testified that prior to contacting the appellees, he had approached a number of banks and individuals for a loan and had been rejected. He testified that he was in dire financial trouble and that the appellees were aware of his situation.

Mr. McElroy contacted Mr. Grisham and initially requested a loan of $100,000. This request was rejected but, after further discussions, Mr. Grisham agreed to a loan of $80,000, of which $40,000 was to be repaid in one year and another $80,000 within the following year. This agreement later developed into a warranty deed combined with an option to purchase. Mr. McElroy admitted it was he who proposed the terms finally agreed upon, and we have said that a debtor may be estopped from asserting the defense of usury when the debtor created the infirmity in the contract in order to take advantage of the creditor. Ford Motor Credit Co. v. Hutcherson, 277 Ark. 102, 640 S.W.2d 96 (1982). Such was not the case here. Mr. McElroy stated that he was in financial straits and testified repeatedly that it was never his intention to relinquish his land, but simply to arrange a loan for temporary financial relief. Clearly, it was the appellees, not Mr. McElroy, who received an unfair advantage.

Furthermore, there was testimony from Mr. McElroy’s expert witness that the land was valued at $227,200, and, in fact, Mr. McElroy states that he paid approximately $238,357 for it. This evidence reflects a gross disparity between what Mr. McElroy paid for it, and the appellees’ purchase price of $80,000.

There was also disagreement in the record as to the execution of the contract for sale. The appellees maintained that Mr. McElroy simply failed to exercise his option in time and that a lawful contract for deed was then executed after the allegedly usurious transaction was obsolete. Again, the trial court gave credence to Mr. McElroy’s testimony that he began discussing the exercise of his option before the February 13,1988, expiration date. The parties discussed Mr. McElroy selling a condominium to the appellees for $45,000, which could be rolled over to the option contract, but this plan was not carried out. When it became apparent that Mr. McElroy would be unable to make the $40,000 payment, as required by the option contract, the parties renegotiated and executed the contract for deed with new terms of payment. Although the document was signed on March 1, 1988, Mr. McElroy claims that its terms were decided prior to the expiration of the option and introduced into evidence a typewritten memo setting out such terms, which he claims to have signed on February 13, 1988.

In deciding whether a certain transaction is usurious, all attendant circumstances must be taken into consideration. Sammons-Pennington Co. v. Norton, 241 Ark. 341, 408 S.W.2d 487 (1966). Mr. McElroy’s obvious financial troubles, his expressed intent to keep the land, the substantial disparity between what Mr. McElroy paid for the property and the appellees’ purchase price, and the appellees’ immediate renegotiation of a contract for deed when it became apparent Mr. McElroy could not “exercise his option,” all point to the conclusion that none of the parties intended for the property to come into the hands of the appellees any more than was necessary to secure the loan and for the appellees to make a profit from such loan.

Similar transactions have previously been scrutinized by this court and all were deemed usurious. See Tillar v. Cleveland, 47 Ark. 287, 1 S.W. 516 (1886); Sparks v. Robinson, 66 Ark. 460, 51 S.W. 460 (1899); Banks v. Walters, 95 Ark. 501, 130 S.W. 519 (1910); Ringer v. Virgin Timber Co., 213 F. 1001 (E.D. Ark. 1914); Sleeper v. Sweetser, 247 Ark. 477, 446 S.W.2d 228 (1969). We have no trouble in reaching the same conclusion and uphold the chancellor’s finding that all of the transactions constituted one scheme to loan money at a usurious rate of interest.

II. RELEASE

The appellees’ second argument on cross-appeal challenges the trial court’s denial of their motion for summary judgment in which it was argued that a “release agreement” signed by Mr. McElroy effectively terminated the contract for deed and resulted in Mr. McElroy’s forfeiture of the property.

We do not consider this argument, however, since the denial of a motion for summary judgment is not subject to review on appeal, even after a trial on the merits. See Rick’s Pro Dive 'N Ski Shop, Inc. v. Jennings-Lemon, 304 Ark. 671, 803 S.W.2d 934 (1991).

In addition, the appellees’ failure to cite any legal authority in support of this argument further merits its dismissal. See May v. Bob Hankins Distrib. Co., 301 Ark. 494, 785 S.W.2d 23 (1990).

Having disposed of the appellees’ cross-appeal, we now turn to Mr. McElroy’s arguments on direct appeal.

III. INTEREST PAYMENT

Mr. McElroy first contends that the trial court erred in determining the amount of interest he paid on the loan. Ark. Const, art. 19, § 13(a) provides that the maximum rate of interest shall not exceed 5 % per annum above the applicable Federal Reserve Discount Rate. This was established at trial to be 10.5 %. Art. 19, § 13 further provides that all contracts having a rate of interest in excess of the maximum lawful rate will be void as to the unpaid interest.

Although the chancellor determined that the usurious transaction at issue involved the initial “loan” of $80,000 at a repayment of $120,000 (i.e. interest in the amount of $40,000), he erroneously relied on appellee Doshier’s calculation of interest under the second contract for deed, which called for a payment of $125,000 to be made in installments at a 10% interest rate. These figures were calculated by Mr. Doshier during a discussion with Mr. McElroy concerning his repayments under the contract for deed and the chancellor understandably relied on them as no other calculations regarding the amount of interest already paid by Mr. McElroy were offered. The calculations showed that a total of $46,000 paid by Mr. McElroy, $10,866 of that amount went to interest under the terms of the contract. In determining whether a contact is usurious, it must be viewed as of the time it is entered into. Hayes v. First Nat’l Bank of Memphis, 256 Ark. 328, 507 S.W.2d 701 (1974). Since the usurious transaction began with the original loan of $80,000 to be repaid at $120,000, the amount of interest paid must be calculated on the basis of that initial transaction, rather than the second contract for deed.

At trial, Mr. Danny Criner, President of Newton County Bank, testified that an $80,000 loan, repaid at $40,000 in one year and $80,00 the following year, would result in an annual interest rate of 30 to 35%. No further testimony or calculations were offered to explain these figures. Mr. McElroy’s computations place the illegal rate at approximately 25%.

Because of these discrepancies, we remand the case so that the correct annual interest rate of the original transaction can be calculated.

In addition, we instruct the trial court to determine, in accordance with the dates and amounts of payments made by Mr. McElroy, how much of the payments already made constitutes payment toward the principle debt and how much constitutes interest. There is sufficient evidence of the exact dates and amounts of the payments in the record from which to calculate the interest. Mr. McElroy has suggested a method of calculation using a 25% rate of interest, and a 365 exact-day interest formula. We note that this is one of four acceptable methods of computing simple interest, and refer the trial court to our discussions in Martin’s Mobile Homes v. Moore, 269 Ark. 375, 601 S.W.2d 838 (1980), and Ford Motor Credit Co. v. Hutcherson, supra, for guidance as to the appropriate method of calculation.

IV. PENALTY

Mr. McElroy next argues that the chancellor erred in refusing to award twice the amount of interest paid. We agree.

Art. 19, § 13(a)(ii) provides:

All such contracts having a rate of interest in excess of the maximum lawful rate shall be void as to the unpaid interest. A person who has paid interest in excess of the maximum lawful rate may recover, within the time provided by law, twice the amount of interest paid. It is unlawful for any person to knowingly charge a rate of interest in excess of the maximum lawful rate in effect at the time of the contract, and any person who does so shall be subject to such punishment as may be provided by law. (Emphasis added).

The trial court interpreted the above language to be discretionary and awarded only $16,300 as penalty, based on an interest calculation of $10,866. Whether this specific provision is mandatory or discretionary has not been decided by this court, although we have upheld awards for twice the amount of interest paid. See Taylor’s Marine v. Waco Mfg., supra.

In Taggart & Taggart Seed Co., Inc. v. City of Augusta, 278 Ark. 570, 647 S.W.2d 458 (1983), however, we reaffirmed our principle that those things which are of the essence of the thing to be done are mandatory, while those not of the essence of the thing to be done are directory only. 278 Ark. at 574, 647 S.W.2d at 459 (1983) (citing Edwards v. Hall, 30 Ark. 31 (1875)). Art. 19, § 13, as we interpret it, is penal in nature. This is evidenced by the language following the provision for recovery of interest. The purpose of the article was obviously to discourage ursurious contracts, and to allow the trial courts to dispense with the penalty at their discretion would be to defeat this purpose.

Furthermore, we reminded, in Arkansas State Racing Comm’n v. Southland Racing Corp., 226 Ark. 995, 295 S.W.2d 617 (1956) that “[i]t is of course a familiar rule of statutory construction that ‘may’ is to be construed as ‘shall’ when the context of the statute so requires.” Constitutional provisions are construed in the same manner as statutes. See Shepherd v. City of Little Rock, 183 Ark. 244, 35 S.W.2d 361 (1931); McDonald v. Bowen, 250 Ark. 1049, 468 S.W.2d 765 (1971).

We hold that the language in Art. 19, § 13 is mandatory, and further remand with directions to award Mr. McElroy twice the amount of the interest to be calculated in accordance with our previous instructions.

V. ATTORNEY’S FEES

Mr. McElroy next argues that he should have been awarded attorney’s fees under Ark. Code Ann. § 16-22-308 (Supp. 1989). This statute allows a prevailing party in a civil action to recover reasonable attorney’s fees for various causes of action, including breach of contract. Mr. McElroy claims that a usurious transaction falls within this category.

We do not address this argument, however, since the trial court did not rule on the issue. Although Mr. McElroy asked for attorney’s fees in his complaint, and in a letter to the trial court following its first opinion letter, the trial court did not rule upon the request, either in its second letter of opinion or in its final order.

The burden of obtaining a ruling is on the movant; objections and matters left unresolved are waived and may not be relied upon on appeal. Carpetland of N.W. Ark., Inc. v. Howard, 304 Ark. 420, 803 S.W.2d 512 (1991).

VI. POST JUDGMENT INTEREST

Finally, Mr. McElroy contends that if this court decides not to adjust the interest calculation or penalty assessed so as to award a net judgment in his favor, the trial court’s decision should be modified to eliminate the requirement that he pay post judgment interest.

Whether or not post judgment is awarded in Mr. McElroy’s favor, will depend on the trial court’s decision on remand. However, we do not agree with Mr. McElroy’s argument that Art. 19, § 13 bars post judgment interest. Art. 19 voids only the payment of interest under the usurious contract and has nothing to do with the interest due on the judgment amount. Should the trial court award net judgment again in favor of the appellees, it may also again award post judgment interest on that amount.

The decision of the trial court is affirmed in part and reversed and remanded in part, with instructions not inconsistent with this opinion.


source: Caselaw Access Project

author: Jack Holt, Jr., Chief Justice.

license: Public Domain

text:
    Charles TACKETT and Alberta Tackett v. FIRST SAVINGS OF ARKANSAS
    90-237
    810 S.W.2d 927
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991
    [Rehearing denied July 8, 1991.]

      Homer Tanner, for appellants.

      B. Frank Mackey, Jr. P.A., by: Rosanna Henry, for appellee.
   Jack Holt, Jr., Chief Justice.

The appellants, Charles Tackett and Alberta Tackett, appeal from the chancellor’s grant of foreclosure, filed by the appellee, First Savings of Arkansas, F.A. (First Savings). The Tacketts assert three arguments for reversal: 1) First Savings is not the record, legal owner of the indebtedness sued upon; 2) the contract sued upon by First Savings is usurious; and 3) the trial court had no authority to reopen the record to allow the admission of the certificate of First Federal Savings of Arkansas as to corporate existence. The final argument has merit but does not affect our decision to affirm the chancellor’s grant of foreclosure.

On November 30,1979, Ms. A. Tawanna Minix executed a promissory note, payable to the the order of First Federal Savings and Loan Association of Little Rock (First Federal S&L). The note was to be paid in monthly installments and was secured by a mortgage on certain property located in Pulaski County. The mortgage was executed contemporaneously with the note.

Later, Ms. Minix married Larry D. Tackett and on April 27, 1987, they executed a second mortgage on the property to the appellants, Mr. and Mrs. Charles Tackett.

By December, 1987, Mrs. Minix Tackett was in default on her note to First Federal S&L and a foreclosure suit was filed in Pulaski County Chancery Court. The action was brought under the name of First Federal Savings of Arkansas (First Federal Savings) as First Federal S&L changed its name in 1983 when it became a public corporation and issued stock to the public.

The Charles Tacketts were also served as parties to the foreclosure action and subsequently filed a cross-complaint against Larry Tackett and A. Tawanna Minix Tackett to foreclosure their second mortgage lien.

In April, 1988, First Federal Savings filed an amended complaint stating that Mrs. Minix Tackett had brought her loan current since the filing of its action for foreclosure but was again in default, and praying that its mortgage lien be foreclosed. The Charles Tacketts responded to the amended complaint, claiming the note sued upon was usurious.

During the pendency of this action, First Federal Savings became insolvent and was placed under conservatorship by virtue of federal law—the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA). The Resolution Trust Corporation (RTC) was appointed receiver, and sold substantially all of the assets of First Federal Savings to First Savings of Arkansas (First Savings), a federal mutual savings and loan association created by the Act. The chancellor granted First Savings’ motion that it be submitted as the plaintiff and real party in interest, despite the Tacketts’ objection that there was no evidence of a proper assignment or endorsement of the note and mortgage from First Federal Savings to First Savings.

The case proceeded to trial, and the chancellor held in favor of First Savings and granted the foreclosure. The Charles Tacketts, as the second mortgage lienholders, now appeal.

We review the findings of the chancellor de novo on appeal, and do not reverse unless such findings are clearly erroneous. Killam v. Texas Oil & Gas Corp., 303 Ark. 547, 798 S.W.2d 419 (1990).

I. RECORD, LEGAL OWNER OF THE NOTE

The Tacketts first argue that there was no endorsement on the promissory note, as required by Ark. Code Ann. § 4-3-202 (1987), nor any evidence of an assignment or written transfer of title, either when the note was transferred from First Federal S&L to First Federal Savings, or upon transfer from First Federal Savings to First Savings; therefore, they contend, title of the note and mortgage remains in the hands of First Federal S&L.

In disagreeing that such assignment or written transfer was necessary, the chancellor found that the change from First Federal S&L to First Federal Savings was one of corporate name change only and that the entities were one and the same. As to the change from First Federal Savings to First Savings, the chancellor further found that the FIRREA effected a valid transfer of the note and mortgage by operation of law.

Our de novo examination of the record reveals that the chancellor reached the right results, but for the wrong reasons. We are not convinced that the chancellor’s findings as to the chain of succession of the successor corporations, such as the finding that First Federal S&L and First Federal Savings were the same entity, but for name change, are correct. However, these findings are of no moment as the evidence before us clearly establishes that valid transfers of the note and mortgage in question occurred between all three institutions under Ark. Code Ann. § 4-3-201 (1987).

Ignoring section 4-3-201, the Tacketts rely on section 4-3-202, which defines negotiation of written instruments, and provides in pertinent part:

(1) Negotiation is the transfer of an instrument in such form, that the transferee becomes a holder. If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery.
(2) An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.

The Tacketts’ assertion that endorsement was required before the document could be transferred is erroneous since negotiation of an instrument cannot be equated with mere transfer, as defined in section 4-3-201. This section states:

(1) Transfer of an instrument vests in the transferee such rights as the transferor has therein, except that a transferee who has himself been a party to any fraud or illegality affecting the instrument or who as a prior holder had notice of a defense or claim against it cannot improve his position by taking from a later holder in due course.
(2) A transfer of a security interest in an instrument • vests the foregoing rights in the transferee to the extent of the interest transferred.
(3) Unless otherwise agreed any transfer for value of an instrument not then payable to bearer gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor. Negotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner.

Note 1, from the Official Comment to U.C.C. § 3-202, explains that: “Negotiation is merely a special form of transfer, the importance of which lies entirely in the fact that it makes the transferee a holder as defined in Section 1-201. . . .” See also Brown v. Bell, 291 Ark. 116, 722 S.W.2d 592 (1987) (endorsement unnecessary to transfer an instrument by gift).

Our case law is clear that one can become a transferee, with all the rights of the transferor, without negotiation or endorsement. For example, in Griffith v. Griffith, 250 Ark. 845, 467 S.W.2d 737 (1971), we held that where a mother paid off the balance due on her son’s note, which was secured by a mortgage, and the wife of the note holder marked the note paid in full, signed her husband’s name, and surrendered the note to the mother, the transaction was, in effect, an assignment of the debt, carrying with it the lien of the mortgage. We explained that the mother “had accounted for her possession of the unendorsed note by proving the transaction through which she acquired it.” Id., 250 Ark. at 848, 467 S.W.2d at 739. See also Brown v. Bell, supra; Williams v. Harrell, 226 Ark. 115, 288 S.W.2d 321 (1956).

Here, the chain of possession was likewise established. Evidence of First Savings’ acquisition of the note was presented primarily through the testimony of its Vice President, Glen Williams. Mr. Williams testified that First Federal S&L was in possession of the promissory note and mortgage when it made the decision to sell private stock. He stated that this decision simply effected a change of corporate title—from First Federal Savings and Loan Association of Little Rock to First Federal Savings of Arkansas-—and that “all the assets and all the liabilities accrue to the new corporation and they’re just transferred on to the public record.” Mr. Williams remarked that “all those documents are filed in the county records.”

Whether there was an actual change of entities or whether the change was one of corporate title only is irrelevant since our concern is whether or not there were valid transfers. Here, First Federal Savings clearly acquired the note from First Federal S&L and continued to collect payments from Mrs. Minix Tackett.

Later, the transfer of assets from First Federal Savings to First Savings occurred by operation of law under the FIRREA, Pub. L. No. 101-73,103 Stat. 183 (1989). The FIRREA created the Resolution Trust Corporation (RTC), which was then appointed receiver for the insolvent First Federal Savings, and the institution was renamed First Savings of Arkansas. See 12 U.S.C § 1441a(a) and (b) (Supp. 1991).

In addition, Mr. Williams testified that the RTC executed a general assignment to First Savings assigning “all the Assignor’s right, title and interest in and to any and all mortgages and other security interests filed for record in the county of Pulaski and State of Arkansas.” The Tacketts argue that this assignment was effective only as to the mortgage and not the note. Even assuming this point to be correct, Mr. Williams’ testimony established that transfers, were nonetheless made between all three entities involved.

II. USURY

For their second point of error, the Tacketts argue that the late charge contained in the terms of the promissory note rendered the contract usurious. We disagree.

The terms of the note provided for monthly payments of $260.70, which were based on an annual interest rate of 9.875 % for a $30,000 loan. In addition, the borrower was to pay “a late charge of 4 percent of any monthly installment not received by the holder within fifteen days after the installment is due.” The record indicates that Mrs. Minix Tackett had been late with payments since January, 1988, and ceased paying altogether in August, 1988.

At the time the note was executed, Ark. Const, art. 19, § 13 provided that all contracts exceeding an interest rate of 10% per annum would be void. The Tacketts maintain that the 4% charge, when added to the monthly payments and amortized over the 30 year life of the loan, results in a usurious contract. This reasoning is wrong since the charges were to be assessed only for those months in which payment was overdue.

If an instrument is not usurious on its face, the borrower (or the one challenging it) has the burden of proving it is usurious. See Bunn v. Weyerhaeuser Co., 268 Ark. 445, 598 S.W.2d 54 (1980). A charge which is labeled a penalty, but which is really a subterfuge for interest, may render a transaction usurious; however, a late charge that is in the nature of a penalty will not. See Smith v. Figure World Plus, Inc., 288 Ark. 355, 705 S.W.2d 432 (1986). Although we examine each cause of this type on all of its own particular facts, two of the principal factors in determining if the charge is truly a penalty are whether the charge is fixed in artiount and whether it is assessed as a onetime charge. Id.

The late charge here was fixed at $10.43 per month, which is 4% of the monthly installment of $260.70. Also, the terms indicated, and Mr. Williams testified, that the charge was assessed only for the months in which the payments were late. Mrs. Minix Tackett owed a total late fee of $135.46, which is the charge for 13 months in delinquent payments at $10.43 a month.

The situation here parallels that in Smith supra. There, the appellant agreed to pay $10 per month for her health club membership. The contract further provided for a $10 late charge for each month in which the payment was overdue. The appellee health club filed suit for overdue membership fees and for $90, for nine months of late charges. We held the charges were nonusurious since they were fixed in amount; were charged only one time, and were not compounded.

Likewise, in Hayes v. First Nat’l Bank of Memphis, TN, 256 Ark. 328, 507 S.W.2d 701 (1974), we upheld, as nonusurious, an agreement charging 5% or $5, whichever was less, for each month the installment of $83.16 was late. We noted that “agreements for penalties to induce prompt payments are free from usury- because the buyer has it in his power to avoid the penalty by discharging the debt when it is due.” Id. at 331, S.W.2d at 703.

The late charge here was a onetime penalty, of a fixed amount, which could have been entirely avoided by prompt payment. We affirm the chancellor’s finding that the contract was nonusurious.

III. SUBMISSION OF CERTIFICATE

Lastly, the Tacketts argue that the trial court had no authority to reopen the record and allow First Savings to include a document not introduced at trial.

At issue, is a certified copy of the document concerning the corporate change of title from First Federal S&L to First Federal Savings. Mr. Williams testified as to the corporate name change, noting that documents supporting this change were filed in the county records, although he did not have them in court. There were no objections to his remarks in this regard.

Following trial, the parties submitted post-trial briefs. First Savings attached to its brief, a certified copy of a recorded document noting Mr. Williams’ testimony concerning the corporate name change. In her opinion letter of March 16, 1990, the chancellor referred to the document and to Mr. Williams’ testimony as the bases for her finding that there was no substantial change in entities. The court noted the document was a public record and stated that the trial record would be reopened to allow First Savings to insert a certified copy.

The Tacketts later filed a written request for findings of fact and conclusions of law, which included a request for the court to cite its authority for reopening the record; the court answered the request, in her own handwriting opposite each request, but did not do so until after the entry of the decree of record and after the notice of appeal and designation of record was perfected by the Tacketts.

When filing their record on appeal with the Court of Appeals (the case was later transferred to this court), the Tacketts filed a motion to strike, having discovered that the certified copy had been inserted into the transcript and noting further that the document was never filed marked, was never included as a pleading by any party, and was not proper evidence. As a result, the court of appeals remanded the matter to the chancellor to settle the record.

Although not abstracted by either party, an examination of the record reveals the chancellor, upon remand, conducted a hearing at which the parties were represented by counsel. Following oral arguments, the chancellor formally introduced the certificate into the record and concluded that such introduction, and the hearing, properly settled the record. We disagree.

The purpose in settling the record, under Ark. R. App. P. 6(e) is to ensure that the record “truly discloses what occurred in the trial court." (emphasis added). It is undisputed that the certificate was not introduced at trial, nor does there appear to have been any discussion concerning its introduction.

Furthermore, the procedure by which the certificate was introduced after trial was improper. Granted, a trial court has discretion to reopen the record before entry of a final decree. See Kennedy v. Kennedy, 243 Ark. 773, 421 S.W.2d 611 (1967). Before doing so, however, the trial must afford both parties the opportunity to be heard on the matter. This was not done. Without entertaining motions or conducting a hearing on the issue, the chancellor merely announced in her opinion letter, that the record is to be opened to allow the insertion of this new evidence. The chancellor entered her final decree on April 3, 1990, without mention of the certificate, yet it appears in the original record as plaintiffs Exhibit 1.

In sum, we cannot approve the procedures utilized by the chancellor in receiving Exhibit 1 as evidence and causing it to be placed into the record, nor can we agree with the chancellor’s apparent assumption that by “settling the record” the improper introduction of a certified copy into evidence was cured.

Although considering this certificate as evidence and placing it in the record was error, we do not see that the Tacketts have been prejudiced. Evidence of the corporate name change, and its relation as to the transference of the note between corporations, was sufficiently introduced through the testimony of Mr. Williams. The certificate has no bearing on our decision on the merits.

Based on the foregoing reasons, we affirm.


author: Robert H. Dudley, Justice.

text:
    STATE of Arkansas v. David Crockett STUART
    CR 91-38
    810 S.W.2d 939
    Supreme Court of Arkansas
    Opinion delivered June 11, 1991

      Winston Bryant, Att’y Gen., by: Clint Miller, Senior Asst. Att’y Gen., for appellant.

      Appellant, pro se.
   Robert H. Dudley, Justice.

The State seeks to have this interlocutory appeal decided pursuant to A.R.Cr.P. Rule 36.10. We dismiss the appeal for lack of jurisdiction.

On October 29, 1988, Latonya Harris, a deaf and mute sixteen-year-old school girl, was kidnapped from a school playground in Malvern and taken to some nearby woods where she was raped. In the course of the investigation the police took the blouse which the victim had been wearing and submitted it to the State Crime Laboratory for analysis. On it, the laboratory found a blood stain and a semen stain. On April 16, 1990, after a year and a half of detailed police work, appellee was arrested and charged with the crimes. He employed Dan Harmon as his attorney. At the time Harmon was a candidate for Prosecuting Attorney of the judicial district in which the crimes took place. In April 1990, with appellee’s consent, the police took a blood sample from him and, also by consent, submitted it to the Federal Bureau of Investigation for deoxyribonucleic acid (DNA) analysis and comparison with the stains found on the blouse. A part of the procedure for DNA analysis involves autoradiography, which is the recording of the radioactive material within the object being examined on a photographic plate, or radiograph.

In May 1990, appellee’s attorney became the nominee of the Democratic party for Prosecuting Attorney of the district. The nomination was tantamount to election, and thus, appellee’s attorney would be expected to assume the prosecutor’s office on January 1,1991. As a result, both the incumbent prosecutor and appellee’s attorney sought to have appellee’s trial concluded before January 1.

On August 2, 1990, the prosecutor anticipated that the DNA analysis would be completed in about two months and asked the trial court to set a trial date. Accordingly, appellee’s attorney employed an expert witness to compare the FBI laboratory’s DNA analysis with accepted scientific standards. On August 8, the trial court set November 2 as the discovery limitation date and set December 3 as the trial date. The trial court subsequently extended the discovery date to November 22. On November 13, the prosecutor received the result of the DNA analysis which provided “the probability of selecting an unrelated individual at random from the Caucasian population having a profile matching K-2 [appellee’s blood sample] is approximately one in six million.”

Appellee’s attorney asked the prosecutor for the autoradiographs in order for the appellee’s expert to examine them. Apparently, the FBI would not release the materials to the appellee’s expert until the prosecutor authorized it to do so. In the meantime, the trial court had rescheduled the trial for December 27. On December 14, the FBI sent by telefacsimile thirty (30) pages of the supporting information to the defense expert, but it was not fully legible and could not be interpreted. The expert stated that without legible material, and some additional related materials from the State Crime Laboratory, he could not be prepared to testify on December 27. As a result, on December 17, the appellee’s attorney filed a motion to suppress any evidence about the DNA analysis. On that same day the autoradiographs were supplied to the expert but that did not leave him with sufficient time to complete a critique of the FBI’s analysis. On December 18, the trial court held a hearing on the motion to suppress the results of the DNA analysis. The State asked for a continuance in preference to a suppression of the DNA analysis.

A continuance was not acceptable to appellee because his counsel, Harmon, was to assume the office of Prosecuting Attorney January 1,1991, and, consequently, would no longer be able to represent him. The trial court granted the motion to suppress and ordered the case to trial on December 27. The State gave notice of this interlocutory appeal pursuant to A.R.Cr.P. Rule 36.10. We do not reach the merits of the State’s appeal because the order from which it is brought is not appealable, a jurisdictional prerequisite which we raise. State v. Russell, 271 Ark. 817, 611 S.W.2d 518 (1981).

The procedure for appeals by the State in criminal cases is governed by Rule 36.10. Prior to the adoption of the Arkansas Rules of Criminal Procedure, the State had no right to bring an interlocutory appeal. State v. Russell, supra. A.R.Cr.P. Rule 36.10 provides in pertinent part:

(a) An interlocutory appeal on behalf of the state may be taken only from a pretrial order in a felony prosecution which (1) grants a motion under Rule 16.2 to suppress seized evidence or (2) suppresses a defendant’s confession.

(Emphasis added.) The Rule clearly limits the instances in which the State may bring an interlocutory appeal to the two (2) specified situations, neither of which is present here. An order suppressing a confession is clearly not involved; neither is an order granting a motion under Rule 16.2 to suppress seized evidence.

A.R.Cr.P. Rule 16.2 provides in pertinent part:

(a) Objection to the use of any evidence, on the grounds that it was illegally obtained, shall be made by a motion to suppress evidence. The phrase “objection to the use of any evidence, on the grounds that it was illegally obtained,” shall include but is not limited to evidence which:
[There follows a list of five (5) examples of illegally obtained evidence.]

(Emphasis added.) Here, the evidence at issue, a DNA test analysis, was not excluded because it was illegally obtained. Rather, the trial court excluded it because it determined that there was not enough time remaining before the scheduled trial for the expert defense witness to adequately evaluate the State’s evidence. In balancing the interests of the appellee against those of the State, the trial court determined that the appellee’s interest in having his case tried quickly and by the attorney of his choice outweighed the State’s interest in presenting the highly probative evidence. Thus, the exclusion of evidence was more closely akin to an exclusion under A.R.Cr.P. Rule 19.7, which provides that a trial court may prohibit the introduction of evidence if it was not properly provided in discovery.

Accordingly, the attempted interlocutory appeal is not brought pursuant to A.R.Cr.P. Rule 36.10, and we are without jurisdiction to hear this appeal.

Appeal dismissed.


author: Robert H. Dudley, Justice. Robert L. Brown, Justice,

text:
    Paul A. SCHMIDT, Pauline B. Schmidt, and Paul G. Schmidt v. McILROY BANK & TRUST
    91-116
    811 S.W.2d 281
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991
    [Rehearing denied July 8, 1991.]

      Steven D. Tennant, and C. Thomas Pearson, Jr., for appellants.

      Robert R. Estes, for appellee.
   Robert H. Dudley, Justice.

The appellants, Paul A. Schmidt, Pauline B. Schmidt, and Paul G. Schmidt, were the sole stockholders in the Aero Corporation, a family farming corporation. The corporation held its checking accounts in, and borrowed extensively from the appellee McIlroy Bank and Trust. The notes, security agreements, and mortgage involved in this dispute were executed in the corporation name. After the corporation overdrew one of its checking accounts, the bank declared its loans to the corporation insecure. The bank accelerated payment of the notes, made demand for payment, filed suit in chancery court for foreclosure on the security for the notes, and sought a judgment for the remaining deficiency, if any, against the corporation, as well as the individual appellants as guarantors of the notes. The chancery court suit apparently has not been finally concluded. See McIlroy Bank & Trust v. Acro Corp., 30 Ark. App. 189, 785 S.W.2d 47 (1990).

Next, the corporation and the individual appellants filed this “lender’s liability” suit against the bank in circuit court. They asked damages for the corporation and damages for themselves as stockholders, but did not ask relief for themselves as guarantors of notes, possibly because the chancery court had not yet determined whether there was a deficiency for the guarantors to pay. The bank filed an answer and a motion for summary judgment with supporting exhibits and affidavits. The corporation and the individual appellants filed an amended complaint and again asked damages for the corporation and themselves as stockholders, but, again, did not ask for damages as a result of the guaranty agreement.

The trial court granted summary judgment against the corporation on the ground that its charter had been revoked for failure to pay franchise fees, but did not grant summary judgment against the individual appellants.

The bank filed a second motion for summary judgment with attached exhibits showing that all notes, security agreements, and mortgages were executed in the name of the corporation and were only guaranteed by the individual appellants. The appellants field a brief opposing the summary judgment and two of their arguments were that they had “stated a cause of action against the bank under the guarantees” and that “the real parties in interest in this cause of action are the individuals as guarantors.” The concluding paragraph of their brief begins as follows: “The plaintiffs [appellants] have clearly shown that the real parties in interest under the facts set forth in the amended complaint are the individuals as guarantors and parties to the notes and extensions. The plaintiffs should be allowed to amend their complaint to permit the real parties to prosecute the action.” However, even though ARCP Rule 15(a) provides in part, “a party may amend his pleadings at any time without leave of court,” the appellants did not file an amended complaint.

The bank filed a brief in which it responded that 12B Fletcher, Cyclopedia of Corporations, § 5916, p. 447(Perm. Ed. 1984) provides that “a personal guaranty may be a basis upon which suit can be brought,” but that the individual appellants “have not alleged any individual causes of action on the basis of their guaranty contracts.” Then, at the hearing on the second motion for summary judgment the bank’s attorney stated:

One other issue that I would like to address is the fact that plaintiffs now raise a cause of action based upon the guaranty contracts. This is not plead in the Complaint, and not plead in the amended Complaint. I cannot find the word “guaranty” or “guaranty contract with guarantor” or any derivative thereof in the Complaint or amended Complaint. (Tr. 1262). The first time “guaranty” shows up is in the plaintiffs response to the Defendant’s second Motion for Summary Judgment. A personal guaranty may be a basis upon which a suit can be brought. There is no question about that. At no time have plaintiffs plead a cause of action on the guaranty contracts.

The individual appellants’ attorney responded, “We ask the court to allow the plaintiffs to amend the complaint for the sole purpose to include the individuals as guarantors and state a cause of action that would not leave any question. . . .” Again, the individual appellants did not amend the complaint, either orally or in writing. Immediately thereafter the court, from the bench, announced that it was granting summary judgment against the individual appellants, and further stated:

Second, as far as the guarantees, there’s no allegation in either the Complaint or amended Complaint which I earlier allowed to stand, is not plead in either one of these two Complaints. I think that, on the day of the hearing on a motion for a summary judgment, is too late to amend the Complaints to include it, so I’m going to deny your oral motion, Mr. Tennant, to amend your Complaint at this particular point in time.

For their first point of appeal, the individual appellants argue that the trial court erred in refusing to permit them to amend their complaint because (1) “the trial court raised the issue on its own motion” and (2) the trial court did not require a showing of prejudice to the bank or undue delay in the disposition of the cause. Under the facts of this case the arguments are without merit.

ARCP Rule 15(a) provides in pertinent part:

[A] party may amend his pleadings at any time without leave of the court. Where, however, upon motion of an opposing party, the court determines that prejudice would result or the disposition of the cause would be unduly delayed because of the filing of an amendment, the court may strike such amended pleading or grant a continuance of the proceeding.

The intent of the rule is stated in the reporter’s notes as follows: “The Committee believed that the amendments to pleadings should be allowed in nearly all instances without special permission from the court. The court is, however, given discretion to strike any amendment which would cause prejudice or unduly prolong the disposition of a case.” We have followed that stated intent. See Webb v. Workers Compensation Comm’n, 286 Ark. 399, 692 S.W.2d 233 (1985); Kay v. Economy Fire & Cas. Co., 284 Ark. 11, 678 S.W.2d 365 (1984).

Appellants argue that the trial court erred in denying the oral motion to amend “on its own motion.” The argument is fallacious. The trial court did not rule “on its own motion.” Instead, the trial court responded to appellants’ unnecessary motion to amend. It was not a ruling on the court’s own motion. If the making of a ruling on that unneeded motion was error, it was invited error. We do not reverse for invited error. Missouri Pac. R.R. Co. v. Gilbert, 206 Ark. 683, 178 S.W.2d 73 (1944).

Appellants also argue that the trial court erred because it did not make a finding that the proposed amendment would cause either prejudice or undue delay of the disposition of the case. The argument is without merit for two reasons. First, the matter was not brought to the attention of the trial judge, and we do not reverse for matters raised for the first time on appeal. Bohannan v. Underwood, 300 Ark. 110, 776 S.W.2d 827 (1989). Second, the proposed amendment was never offered, and the trial court had no way of knowing whether prejudice or undue delay would result. Until the trial court knew the factual details of the allegation, it could not know whether additional depositions or interrogatories were necessary. Similarly, we have no way of knowing, and we will not presume error. The rule requires a finding of prejudice or undue delay only when the court strikes a pleading. In that situation the court would naturally have the facts alleged in the amendment before it and would be able to determine whether prejudice or undue delay would occur. The rule does not require a finding of prejudice or undue delay when a party has merely filed an unnecessary motion seeking to amend. The trial court and the other party are entitled to know the factual allegations of the amendment. If our holding were otherwise a party who was responding to a motion for summary judgment and who was worried about the sufficiency of his proof would always file a motion to amend before the hearing solely as a dilatory safety valve. He would always get more time, because the trial judge could not make a ruling on prejudice or delay. The result would be slower and more expensive determination of the action. That is not the purpose of our rule.

The appellants did not argue below, and do not argue in this appeal, that they orally amended their complaint to state a cause of action as guarantors. Under our long standing procedure, we consider only arguments raised by the parties. We do not consider reversing the trial court for the unargued reason that the appellants orally amended their complaint to state a cause of action as guarantors.

. [5] The appellants next argue that the granting of summary judgment was in error because an issue of material fact remained to be decided. In brief, their argument is that when the corporation’s charter was revoked for failure to pay franchise fees, the officers and shareholders were considered to be operating the business as a partnership and were individually liable for the obligations of the de facto corporation, see Whitaker v. Mitchell Mfg. Co., 219 Ark. 779, 244 S.W.2d 965 (1952); Gazette Publishing Co. v. Brady, 204 Ark. 396, 162 S.W.2d 494 (1942), and since they were subjected to individual liability as partners, they ought to be allowed, in fairness, to bring suit in the same capacity. The argument, while novel, is without merit. The reasoning behind the cases holding officers and stockholders liable is that they ought not be allowed to avoid personal liability because of their nonfeasance. On the other hand, it does not follow that they should be allowed to benefit by their nonfeasance by allowing them to bring suit as partners. The effect of revocation was that the corporation lost its capacity to sue, Sulphur Springs Recreational Park v. City of Camden, 247 Ark. 713, 447 S.W.2d 844 (1969), and this particular type of corporate cause of action ceased to exist. To allow the individual appellants to bring this cause of action would effectively reverse prior law which prohibits suits by a corporation whose charter has been revoked and, in addition, would reward them for their nonfeasance.

The individual appellants had no standing as shareholders to sue for injuries to the corporation. A motion for summary judgment is appropriate when no issue of fact, properly pleaded, remains to be decided. Walker v. Hyde, 303 Ark. 615, 798 S.W.2d 435 (1990). The appellants had not pleaded any individual causes of action under their separate guaranty contracts with the bank. Therefore, the trial court did not err in granting summary judgment.

We need not address the appellants’ third point of appeal which involves an alternative reason for the trial court’s granting summary judgment.

Affirmed.

Holt, C.J., and Brown, J., dissent.

Robert L. Brown, Justice,

dissenting. The majority’s decision on amended pleadings represents a major departure from our past precedent and from the plain language of Ark. R. Civ. P. 15(a). It is now the position of the majority that oral amendments to a complaint are no longer permissible prior to trial and that a trial court has discretion to disallow an amendment on grounds that the amendment is “too late.” What is unsettling is that the decision harbingers the erosion of an important civil pleading rule based on the facts of an individual case.

Here, the appellee Bank filed its motion for summary judgment long before any scheduled trial. At the hearing on the motion the Bank’s attorney argued to the trial court that the appellants “now raise a cause of action based upon the guaranty contracts.” That attorney further alluded to the appellants’ response to the Bank’s summary judgment motion, where, he said, the guaranty “shows up.”

The attorney for the appellants made the following argument in support of bringing the causes of action in the appellants’ capacity as guarantors:

[W]e ask the Court to allow the plaintiffs to amend the Complaint for the sole purpose to include the individuals as guarantors and state a cause of action that would [not leave] any question. . . . [ I] t was the .S'acfc.y. . .,the Buschmann . . ., and . . . the Van Petten case[s] that said, you do have a cause of action as guarantors on the notes. . . .
Also, ... we have pled an intentional infliction of emotional distress in our Amended Complaint. That goes to the individuals. The McIlroy Bank has acted on the personal guarantees, both on the extension agreements of the notes, and on individual guarantees that were signed in 1983 and 1985. The individuals have suffered the harm, . . . and it’s a breach of contract action, and that’s what we have pled, not only breach of contract, but the intentional infliction of emotional distress.

What counsel was asking the court to do was permit the causes of action for the individual appellants, who were already plaintiff's to the complaint, to be specifically brought by them as guarantors. His amendment amounted to little more than the inclusion of the word “guarantors” in the complaint because, as he pointed out to the trial court, factual allegations on behalf of the individual appellants had already been pled.

The majority says that the trial court did not know the factual details of the amendment, but that is not the case. The trial court did understand the amendment and declined to allow it for these reasons:

1. There was no allegation of guaranties in the complaint.
2. Amending the complaint on the day of a summary judgment hearing was too late.
3. The appellants/guarantors could bootstrap themselves into circuit court by means of the guaranties.
4. The appellants/guarantors could have dissolved Aero Corporation and had a cause of action against the Bank.
5. Failure to keep Aero in good standing and failure to dissolve the corporation were arguments against allowing the appellants/guarantors to sue as guarantors.
6. The accounts of Aero were frozen — not the accounts of the appellants/guarantors.

The trial court treated the appellants’ attempt to include the word “guarantors” in their complaint as both a motion to amend and as an actual amendment:

Court: I’ve allowed one amended Complaint this morning that was filed in August, but I’m going to deny your amendment at this point in time and your objections will be noted.

In doing so and then in granting the Bank summary judgment, the trial court committed reversible error.

' Our rule on amendments to pleadings is exceptionally clear: “. . . a party may amend his pleadings at any time without leave of the court.” Ark. R. Civ. P. 15(a). The majority would read into the rule additional requirements that the amendment be in writing and be timely. The rule, however, does not require that. And we should not construe the rule to mean other than what it says. Mears v. Arkansas State Hospital, 265 Ark. 844, 581 S.W.2d 339 (1979).

The majority raises the spectre of a dilatory tactic by counsel making frivolous oral amendments to pleadings at hearings on summary judgment motions. The alternative is the course which the majority has chosen to follow which is to curtail the parties’ freedom to amend in nearly all instances without leave of the court. Reporters’ Notes to Rule 15.

The majority justifies its decision in part on the basis that it does not glean from the appellants’ argument a contention that they actually amended their complaint. I disagree. The appellants were not allowed to amend their complaint. They argued in this appeal that they “sought only to add the words ‘breach of guaranty agreements’ to the Complaint.” This equated to an amendment, and the trial court certainly recognized it as such when it said, “I’m going to deny your amendment.”

The reality of court practice is that an attorney does not say to a trial judge in the middle of a hearing, “I hearby amend my complaint whether you like it or not.” It is couched in terms of a request to amend, as a vehicle for offering the proposed amendment. That is what happened here, and all in attendance understood it, including the trial court. The trial court erred when it denied that amendment, and that error is what is before this ° court.

By advising the trial court of his amendment, counsel for the appellants did what was necessary to comply with Rule 15(a). If the Bank’s counsel had an objection to the amendment, he should have moved to strike it on grounds of prejudice or undue delay as provided under Rule 15(a). The trial court could then have made its decision. That procedure was not followed in this case.

The rules were not adhered to, and for that reason reversal is in order. If there is one axiom under our civil procedure rules, it is that Arkansas recognizes a liberal pleading policy. See Kay v. Economy Fire & Casualty Co., 284 Ark. 11, 678 S.W.2d 365 (1984). A corollary to that axiom is our previous statement regarding Rule 15(a) that the rule, in fact, encourages amendments to pleadings. Id.

Those policies have been thwarted by the decision in this

case.

Holt, C.J., joins.


author: Steele Hays, Justice.

text:
    Kevin BYLER and Tanya Byler Moore, Mother v. STATE of Arkansas
    91-102
    810 S.W.2d 941
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991

      Linda Scribner, Deputy Public Defender, for appellant.

      Winston Bryant, Att’y Gen., Catherine Templeton, Asst. Att’y Gen., for appellee.
   Steele Hays, Justice.

Kevin Byler is the six-year-old son of appellant Tanya Byler Moore. Mrs. Moore and Kevin bring this appeal from an adjudication order of the Benton Chancery Court, Juvenile Division, finding that the family is in need of services under the juvenile code. That finding is based on a petition of the prosecuting attorney alleging acts of burglary and criminal mischief by Kevin and a ten-year-old companion. The order directs Kevin to apologize to the victim and to attend counseling at the Ozark Guidance Center.

The only error alleged on appeal is that the state failed to meet the criteria for determining a family in need of services, as provided in Ark. Code Ann. § 9-27-303(16) (1987). The statute defines a family in need of services as including, but not limited to, being habitually absent from school without justification, habitually disobedient to the reasonable commands of parent or guardian, or absent from home without sufficient cause.

The testimony before the chancellor portrays an episode of vandalism of startling proportions: Joe Phillips, a contractor, testified that he had just completed the extensive remodeling of a home. He stopped to inspect the property and discovered Kevin and his companion in the process of systematically destroying the home and contents. Over fifty percent of oak cabinet doors throughout had been damaged, all interior doors were destroyed, a stainless steel sink, a garbage disposal and a marble lavatory were thrown over a railing into a ravine and destroyed; an airless spray paint machine and paint were destroyed, as were mattresses and box springs from twin beds; Levelor blinds were destroyed and each glass panel of three four by five Thermapane windows was broken. A refrigerator and stove were turned on their side. The only salvageable item was a compactor, only partially damaged. Mr. Phillips testified that the cost of the damage to him was $5,593.39, not including damaged articles belonging to the home-owners.

Appellants cite several general rules of statutory construction: legislative intent is obtained by considering the entire act [Knapp v. State, 283 Ark. 346, 676 S.W.2d 729 (1984)]; different sections are construed together [Noggle v. Arkansas Valley Elec. Coop., 31 Ark. App. 104, 788 S.W.2d 497 (1991)]; “the express designation by statute of one thing may properly be construed to mean the exclusion of another,” Chem-Ash, Inc. v. Arkansas Power & Light Co., 296 Ark. 83, 751 S.W.2d 353 (1988). Thus, appellants maintain that had the legislature intended to include conduct other than the three categories expressly covered, it would have said so.

It would be difficult to believe that the legislature meant to compose a statutory scheme that would empower juvenile courts to make an adjudication of a family in need of services based on truancy, disobedience and running away from home, but not on burglary and criminal mischief. However, we need not depend on conjecture, because even giving the maxim on which appellants rely its fullest drift, it is not an absolute: Cook v. Arkansas Missouri Power Corp., 209 Ark. 750, 192 S.W.2d 210 (1946) (“Express designation of one thing in a statute may properly be construed to mean exclusion of another”) [our emphasis]; Little Rock & F.S.R. Co. v. Clifton, 38 Ark. 205 (1881) (“The express of one thing sometimes implies the exclusion of another” [our emphasis.])

Here, it is entirely clear that by using the words “includes, but is not limited to,” the legislature intended a broader concept of a family in need of services than the three illustrations listed in the statute. We conclude that the chancellor did not err in the adjudication of family in need of services and therefore the order is affirmed.


author: Robert L. Brown, Justice.

text:
    SECURITY BENEFIT LIFE INSURANCE COMPANY v. James H. GRAHAM, Joseph E. Barsocchi, Margaret D. Barsocchi, and Harry H. Kerr, III
    90-248
    810 S.W.2d 943
    Supreme Court of Arkansas
    Opinion delivered June 10, 1991

      Lord, Bissell, & Brook, by: R.R. McMahan, Robert A. Knuti, and Damon N. Yoke and Mitchell, Williams, Selig, & Tucker, by: Byron Freeland, for appellant.

      Pope, Shamburger, Buffalo, & Ross, by: John K. Shamburger and Joseph L. Buffalo, Jr., for appellees.
   Robert L. Brown, Justice.

The four appellees, James H. Graham, Joseph E. Barsocchi, Margaret D. Barsocchi, and Harry H. Kerr, III, filed a second amended complaint against appellant Security Benefit Life Insurance Company, alleging that they were owners of a single premium deferred annuity (SPDA) and held their certificates of insurance under a Group SPDA Master Policy originally issued by The First Pyramid Life Insurance Company of America. Their complaint, which was filed on February 6, 1990, alleged breach of contract and sought terminal payments owed them under the policy. The appellees further prayed for class certification and a determination of the liability of Security Benefit to all class members.

A motion for class certification was then filed by the appellees followed by a hearing on that motion. Subsequent to that hearing, but before the trial court’s decision, fifteen to seventeen additional SPDA certificate holders filed affidavits for participation in the class. The trial court issued findings supporting class certification and followed the findings with an order on June 22, 1990, certifying the case as a class action. The trial court’s order defined the class as all present owners of individual certificates issued by First Pyramid under the Group SPDA Master Policy. The order estimated the number of certificate holders as 600 with residences in thirty-nine states.

Security Benefit lodged this interlocutory appeal, contesting the trial court’s decision under Ark. R. Civ. P. 23 on grounds that the proposed class was not sufficiently numerous, that common questions of law or fact did not predominate, and that other methods existed for a fair and efficient adjudication of this dispute.

We affirm the trial court’s decision and hold that the case was properly certified as a class action.

The Group SPDA Master Policy, which covers the appellees as certificate holders, was originally issued by First Pyramid, an Arkansas-based insurer, on June 1,1982. As of June 1,1986, that contract was assumed by Security Benefit, which is based in Kansas, under a reinsurance assumption agreement. The agreement was approved by the Arkansas Insurance Commission. The annuitants were sent an assumption certificate, which included notice of the assumption by Security Benefit.

Less than a year later, on March 31,1987, the Group SPDA Master Policy and all associated liability was assumed by Life Assurance Company of Pennsylvania (LACOP). Notice of this transfer and the release of Security Benefit was not sent to the annuitants, according to the appellees. The appellees further contend that no regulatory approval for this transfer was obtained and that Security Benefit continued to service the contracts of certificate holders after March 31, 1987.

On June 14, 1988, still another assumption of the Master Policy and annuity contracts was made — this time, by Diamond Benefits Life Insurance Company. Diamond Benefits, at that point, was a domestic carrier in Arizona. The annuitants were notified of the transfer by letter and assumption certificate which included the fact that LACOP had previously assumed the contracts and would no longer be obligated under them. The appellees contend, however, that the annuitants were never specifically advised that Security Benefit would no longer be obligated to perform under the contracts. Since this assumption by Diamond Benefits, the Arizona insurance commissioner has determined that Diamond Benefits is insolvent, and on December 19, 1988, he put the company into receivership.

While our cases interpreting Ark. R. Civ. P. 23 were somewhat inconsistent prior to 1988, we took pains to clarify our interpretation in a case handed down that year. See International Union of Elec., Radio & Mach. Workers v. Hudson, 295 Ark. 107, 747 S.W.2d 81 (1988). In Hudson we observed that, though our Rule 23 differed from Federal Rule 23 in text, the spirit of the federal rule existed in our Rule 23. We, therefore, rejected our traditional circumspection toward class actions in Hudson.

We also affirmed in Hudson, as well as in later cases, the broad discretion given to the trial court in matters relating to class actions. See Lemarco, Inc. v. Wood, 305 Ark. 1, 804 S.W.2d 724 (1991); First Nat’l Bank of Fort Smith v. Mercantile Bank of Jonesboro, 304 Ark. 196, 801 S.W.2d 38 (1990). Our Reporter’s Note 2 to Rule 23 recognizes the broad discretion in the trial court to protect the rights of class members, and we expanded the scope of that authority in Hudson to embrace also the court’s decision of whether a class should be certified.

Thus, in deciding the case before us, we must view it in terms of these twin precepts: our policy change in that we no longer espouse our former circumspection toward class actions, and the broad discretion we have conferred upon the trial court in deciding the class certification issue.

Here, the trial court found that a class existed and that a class action was superior to other available methods for a fair and efficient adjudication of the controversy. At the time of the court’s decision the pertinent part of Rule 23 read:

(a) Where the question is one of a common or general interest of many persons, or where the parties are numerous, and it is impracticable to bring all before the court within a reasonable time, one or more may sue or defend for the benefit of all.
(b) An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

Security Benefit first argues that the parties are not sufficiently numerous to satisfy the requirement of Rule 23(a). We disagree. Security Benefit, itself, admits to 600 certificate holders residing in thirty-nine states. An official with the Arkansas Insurance Department testified at hearing on the day the court’s class certification order was issued that the Department had received a letter listing 122 Arkansas certificate holders, all of whom may be potential class members. According to the affidavit of a court-appointed supervisor for the insolvent Diamond Benefits in Arizona, Security Benefit submitted to him a list of 1,419 annuitants in January 1989. Fifteen to seventeen certificate holders in addition to the appellees exhibited a desire to participate in the class action prior to the trial court’s decision. There are clearly numerous potential class members in this matter, and it would be impractical to bring them all before the trial court within a reasonable time. The trial court was correct in finding that the numerosity criterion had been met.

We are next confronted with Rule 23(b) and the issue of whether questions of law or fact common to the class members predominate over individual questions. We hold that the trial court was correct in finding that they do. Common questions of fact certainly predominate for the class. For example, it must be determined for all class members whether they were notified by mass mailing of the assumption of Security Benefit’s obligation by LACOP or Diamond Benefits; whether regulatory approval was obtained for the assumptions of this obligation; and whether Security Benefit continued to “service” the class members after LACOP assumed the contract. In addition, Security Benefit itself raises the defense against class members that a novation occurred by the later assumptions which relieved Security Benefit of all liability. Linder such circumstances we cannot say that the trial court abused its broad discretion in its finding.

Security Benefit’s main argument appears to center on the fact that the law of thirty-nine states relative to novation would have to be explored and that this would splinter the class action into individual lawsuits. Accordingly, so the argument goes, this would not result in a fair and efficient adjudication of the matter. We have previously held, however, that even if this were to occur with regard to individual claims, “efficiency would still have been achieved by resolving those common questions which predominate over individual questions.” Lemarco, 305 Ark. at 4, 804 S.W.2d at 726. Stated another way, resolution of the common questions of law or fact would enhance efficiency for all parties, even if individual claims still remained to be adjudicated.

The mere fact that choice of law may be involved in the case of some claimants living in different states is not sufficient in and of itself to warrant a denial of class certification. C.f., Sun Oil Co. v. Wortman, 486 U.S. 717 (1988). And though we are not convinced at this stage that reference to the laws of thirty-nine states will be necessary, should it be required, this does not seem a particularly daunting or unmanageable task for the parties or for the trial court.

Because Arkansas is the home state for First Pyramid and because Arkansas law is the law to be applied under the Master Policy, it is the logical situs for this action. Actions in thirty-nine states, even with considerable joinder, would be inefficient, duplicative, and a drain on judicial resources. Denial of class action status could well reduce the number of claims brought in this matter, but that result is hardly in the interest of substantial justice.

We conclude that a class action which would resolve several common questions would not only be efficient but fair to both parties. Security • Benefit, for instance, would only be required to mount its novation defense in one court as opposed to numerous forums, a factor that we have considered in previous cases. See Lemarco, Inc. v. Wood; International Union of Elec., Radio & Mach. Workers v. Hudson. Class members, on the other hand, would not be required to file complaints in myriad courts in a matter involving insurance companies which at one time were located in four different states.

The trial court correctly found that the Rule 23 factors had all been met, and we affirm.

Glaze, J., not participating.

       Paragraph (a) of Rule 23 has since been amended, effective February 1,1991, and now corresponds to Federal Rule 23.