Schwarz v. Colonial Mortgage Co.

Karl W. SCHWARZ v. COLONIAL MORTGAGE COMPANY, 
  Randy H. Thomason, Kelly A. Thomason, 
Steven Murphy, and Delores Murphy

96-458                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered October 28, 1996


1.   Ejectment -- action lies in law. -- Ejectment lies in law.

2.   Partition -- action may be filed in law or equity. --
     Partition may be filed in either law or equity.

3.   Jurisdiction -- initial action contained claim for partition
     as well as ejectment -- basis for equitable jurisdiction
     present. -- Because the initial action in circuit court
     contained a claim for partition as well as ejectment, a basis
     for equitable jurisdiction was present; in addition, counsel
     for certain appellees sought to quiet title in their
     litigation in chancery court caused by the cloud on title
     created by the ejectment lawsuit; they further raised
     equitable claims such as laches and estoppel as defenses to
     appellant's ejectment claim at the hearing before the
     chancellor; the supreme court concluded that the chancellor
     correctly assumed jurisdiction of this matter.

4.   Limitation of actions -- five-year statute pertaining to
     cancellation of instruments inapplicable. -- The supreme court
     determined that  the five-year statute of limitations
     pertaining to cancellation of contracts and negotiable
     instruments, Ark. Code Ann.  16-56-111(a) (Supp. 1995), was
     inapplicable to the case; the only instances in which this
     statute has been applied to a cause of action to establish
     title to real property is where a party has sued on a contract
     contained within the deed.

5.   Deeds -- forgery cannot divest person of estate in land --
     forged "correction deed" not bar to appellant's ejectment
     action. -- A forged deed cannot divest a person of an estate
     in land; thus, although appellant maintained that the
     "correction deed" was forged, and the chancellor assumed the
     forgery for purposes of summary judgment, appellant still had
     good title, and the forged "correction deed" was not a bar to
     his pursuit of an ejectment action; the supreme court saw no
     basis for the chancellor's conclusion that the "correction
     deed" first had to be cancelled by appellant when he contended
     that the deed was a forgery.

6.   Limitation of actions -- seven-year statute for recovery of
     lands applicable. -- The supreme court concluded that the
     seven-year statute of limitation for recovery of lands,
     contained in Ark. Code Ann.  18-61-101 (1987), applied to the
     case.

7.   Deeds -- forgery -- chancellor construed signature as forgery
     -- presenting proof of forgery was not necessary. -- Where
     appellees argued that appellant did not meet proof with proof
     with respect to whether his signature on the correction deed
     was forged, the supreme court observed that the argument
     belied the plain language of the chancellor's order, in which,
     for summary-judgment purposes only, she construed appellant's
     signature on the correction deed as a forgery; presenting
     proof of forgery was clearly not necessary.

8.   Ejectment -- action not barred by Ark. Code Ann.  18-61-103
     (1987) where appellant claimed title to lot. -- Where
     appellees argued that the ejectment action was barred by Ark.
     Code Ann.  18-61-103 (1987), which prohibits an ejectment
     action when a plaintiff who has been five years out of
     possession does not claim title to the lands, the supreme
     court concluded that the statute was inapplicable because
     appellant did claim title to the lot in question.

9.    Judgment -- summary judgment inappropriate -- order reversed
     and remanded for trial. -- The supreme court, reviewing
     alternative grounds for affirming the chancellor raised by
     appellees, concluded that whether a ratification of the forged
     correction deed occurred or whether the defenses of laches or
     estoppel have merit were matters that required further
     development before the chancellor; in reviewing the propriety
     of an order of summary judgment, the supreme court will not
     affirm a trial court on alternative grounds when those grounds
     require additional fact finding; the court, holding summary
     judgment inappropriate, reversed the order and remanded for
     trial.


     Appeal from Pulaski Chancery Court; Ellen B. Brantley,
Chancellor; reversed and remanded.
     T.B. Patterson, Jr., P.A., for appellant.
     Marian M. McMullan, P.A., for appellees Colonial Mortgage Co.,
Randy H. Thomason, and Kelly A. Thomason.

     Robert L. Brown, Justice.
     This is an appeal from an order of summary judgment. 
Appellant Karl Schwarz contends that the chancellor erred in
applying the statute of limitations for cancellation of
instruments, which is five years, to an ejectment matter as opposed
to the statute for removal of a person from land, which is seven
years.  We agree that the wrong statute of limitations was applied,
and we reverse the order of summary judgment and remand for trial.
     In March 1976, Karl Schwarz and his wife, Lois Love Schwarz,
purchased Lot 11 of the Hilltop Manor Addition in Little Rock (Lot
11) as tenants by the entirety.  In January 1985, the Schwarzes
separated, Karl Schwarz moved out of the home, and a divorce action
was filed.  In the resulting divorce decree dated September 12,
1985, Karl Schwarz was ordered to quitclaim his interest in the
marital home to Lois Schwarz, who later resumed using her maiden
name of Lois Love.  He did not do so.
     At a March 19, 1986 hearing to show cause why Schwarz should
not be held in contempt for failure to comply with the order,
Schwarz was faced with the choice of either signing a quitclaim
deed conveying his interest in Lot 11 to Lois Schwarz or facing
incarceration for 90 days.  After discussing the matter with
counsel, he signed a quitclaim deed which contained an incorrect
legal description: Lot 10, rather than Lot 11, Hillside Addition to
the City of Little Rock.  Schwarz admits that he did this knowingly
and for the purpose of conveying no legal interest.  The quitclaim
deed was then recorded.
     On October 23, 1986, Lois Schwarz, now Lois Love, conveyed Lot
11 to appellee Randy H. Thomason, and in the process, outstanding
notes secured by mortgages were satisfied.  The deed was recorded
on October 28, 1986.  As part of the purchase price, Randy Thomason
executed a promissory note in favor of Pinnacle Mortgage Company,
which was secured by a deed of trust on the property executed by
both Randy Thomason and his wife, Kelly A. Thomason.  The note was
subsequently assigned to Appellee Colonial Mortgage Company.
     In March 1987, Schwarz was informed by the Pulaski County
Circuit Clerk that a "correction deed" conveying Lot 11 to Lois
Schwarz and bearing his signature had been recorded on April 7,
1986.
     In September 1988, Lot 11 was conveyed by the Thomasons to
appellees Steven Murphy and his wife, Delores Murphy.  The Murphys
assumed payment of their note and executed a note in favor of Randy
H. Thomason and a second mortgage on the property.

     On October 22, 1993, Schwarz filed a lis pendens and an action
for ejectment or, in the alternative, a partition of the property
in Pulaski County Circuit Court on the basis that the "correction
deed" purportedly signed by him was a forgery.  An amended and
substituted complaint later named the Thomasons, the Murphys, the
trustee or successor trustee of the deed of trust, and Colonial
Mortgage Company as defendants.  On July 26, 1994, Colonial
Mortgage filed an action in Pulaski County Chancery Court to quiet
title due to Schwarz's forgery allegations and for foreclosure and
named as defendants the Thomasons, the Murphys, any unknown tenants
of the property in question, and Karl Schwarz.  On motion by the
Thomasons, the circuit court transferred the ejectment/partition
suit to chancery court for consolidation with the foreclosure
action.
     Once in chancery court, appellees Colonial Mortgage and the
Thomasons moved for partial summary judgment on Schwarz's
ejectment/partition claim.  For purposes of the summary judgment
motion, the chancellor found the "correction deed" conveying Lot 11
to Lois Schwarz to be a forgery.  The chancellor then granted the
motion because the complaint was filed outside of the time for
filing an action for cancellation of an instrument.  Her order
reads in part:
          In order for Schwarz to prevail on his cause of
     action for ejectment or partition, Schwarz must first
     cancel the Correction Deed in the record chain of title.
          The Court finds that the period of limitations for
     cancellation has expired and, therefore, Schwarz has lost
     his opportunity to set aside the Correction Deed. 
In reaching this conclusion, the chancellor specifically relied on
Hedlund v. Hendrix, 39 Ark. App. 58, 837 S.W.2d 488 (1992).  The
chancellor also awarded Colonial Mortgage judgment and a first lien
in the foreclosure action and judgment and a second lien to
appellee Randy H. Thomason.

                         I. Jurisdiction
     We first address whether chancery court had jurisdiction of
this matter, though this issue was not raised by the parties.  The
initial action in circuit court was for ejectment or,
alternatively, for partition.  The action was premised on an
allegation that the "correction deed" was forged.  Ejectment lies
in law.  Carter v. Phillips, 291 Ark. 94, 722 S.W.2d 590 (1987). 
Partition may be filed in either law or equity.  Ark. Code Ann. 
18-60-401 (1987).  After Colonial Mortgage filed its action to
quiet title and its foreclosure action in chancery court, the
ejectment/partition suit was transferred to chancery court and
consolidated.
     Because the initial action in circuit court contained a claim
for partition as well as ejectment, a basis for equitable
jurisdiction was present.  In addition, counsel for appellees
Colonial Mortgage and the Thomasons sought to quiet title in their
litigation in chancery court caused by the cloud on title created
by the ejectment lawsuit.  They further raised equitable claims
such as laches and estoppel as defenses to Schwarz's ejectment
claim at the hearing before the chancellor.  See Robertson v.
Chronister, 196 Ark. 141, 161 S.W.2d 1048 (1938).  We do not know
whether these same defenses were raised in the appellees' answer to
the ejectment action, since the answer was not designated as part
of the record.  We conclude that the chancellor correctly assumed
jurisdiction of this matter.

                    II. Statute of Limitation
     Schwarz argues on appeal that the statute of limitation for
cancellation of instruments has no bearing on this case.  That
statute reads in pertinent part:
     (a) Actions on promissory notes and other instruments in
     writing not under seal shall be commenced within five (5)
     years after the cause of action shall accrue, and not
     thereafter.  However, partial payment or written
     acknowledgment of default shall toll this statute of
     limitation.
Ark. Code Ann.  16-56-111(a) (Supp. 1995).
     Schwarz urges that  16-56-111(a) essentially applies to
cancellation of contracts and negotiable instruments.  We agree. 
The only instances in which this statute has been applied to a
cause of action to establish title to real property is where a
party has sued on a contract contained within the deed.  See, e.g.,
Woods v. Wright, 254 Ark. 297, 493 S.W.2d 129 (1973) (requiring the
appellant to specifically perform a contract of sale entered into
between the appellee and the appellant's grantor); Daniels v.
Johnson, 234 Ark. 315, 351 S.W.2d 853 (1961) (suit to foreclose on
mortgage, not a deed); Federal Land Bank v. Miller, 184 Ark. 415,
42 S.W.2d 564 (1931) (limitations for cancellation of instrument
applied to grantee's promise to take care of grantor for life).
     The chancellor placed great weight on the decision by the
Court of Appeals in Hedlund v. Hendrix, 39 Ark. App. 58, 837 S.W.2d 488 (1992).  We do not agree that that case is controlling.  The
issue in Hedlund was whether a lawsuit to cancel a release of a
guarantor from a guaranty obligation on a promissory note had to be
filed within five years under  16-56-111(a).  The Court of Appeals
held that it did.  That is a totally different situation from the
case before us.  First, Hedlund involved a guaranty of a negotiable
instrument.  Secondly, it was necessary for the release in Hedlund
to be cancelled before a cause of action could accrue against the
guarantor.  In the instant case, Schwarz maintained that the
"correction deed" was forged, and the chancellor assumed the
forgery for purposes of summary judgment.  The law is clear that a
forged deed cannot divest a person of an estate in land.  See
Coulter v. Clemons, 237 Ark. 227, 372 S.W.2d 396 (1963); Williams
v. Warren, 214 Ark. 506, 216 S.W.2d 879 (1949); Hall v. Mitchell,
175 Ark. 641, 1 S.W.2d 59 (1927).  Thus, Schwarz still had good
title, and the forged "correction deed" was not a bar to Schwarz's
pursuit of an ejectment action.  We see no basis for the
chancellor's conclusion that the "correction deed" first had to be
cancelled by Schwarz when Schwarz contended the deed was a forgery.
     We conclude that the seven-year statute of limitation for
recovery of lands, contained in Ark. Code Ann.  18-61-101 (1987),
applies to this case.  That statute provides in relevant part:
     No person or his heirs shall have, sue, or maintain any
     action or suit, either in law or equity, for any lands,
     tenements, or hereditaments after seven (7) years once
     his right to commence, have, or maintain the suit shall
     have come, fallen, or accrued.  All suits, either in law
     or equity, for the recovery of any lands, tenements, or
     hereditaments shall be had and sued within seven (7)
     years next after the title or cause of action accrued and
     no time after the seven (7) years shall have passed.
Ark. Code Ann.  18-61-101(a) (1987).
      The appellees argue as an alternative ground for affirmance
that Schwarz did not meet proof with proof with respect to whether
his signature on the correction deed was forged.  This argument
belies the plain language of the chancellor's order: "For purposes
of [Appellees'] Motion for Summary Judgment only, the [C]ourt has
construed the signature of Karl Schwarz on the Correction Deed as
a forgery, as Schwarz has alleged."  Presenting proof of forgery
was clearly not necessary.
     The appellees also advance the argument that the ejectment
action is barred by Ark. Code Ann.  18-61-103 (1987), which
provides:
          No action of ejectment, when the plaintiff does not
     claim title to the lands, shall be brought or maintained
     when the plaintiff, or his testator or intestate, has
     been five (5) years out of possession.
Id. (emphasis added).  This argument does not apply to this case
because Schwarz does claim title to Lot 11.  See Sutton v. Lee, 181
Ark. 914, 917, 28 S.W.2d 697 (1930).
     The appellees raise other arguments which we also take to be
alternative grounds for affirming the chancellor.  They contend
that Schwarz is still under a binding court decree to grant Lot 11
to his former wife.  Yet, no party in this matter has sought to
enforce the original divorce decree, and Lois Schwarz is not a
party to the consolidated litigation.  The appellees further
contend that Schwarz ratified the forged correction deed by
accepting the benefit of satisfied notes and mortgages on Lot 11
and by waiting so long to file suit.  Whether a ratification
occurred or whether the defenses of laches or estoppel have merit
are matters which require further development before the chancellor
in our opinion.  In reviewing the propriety of an order of summary
judgment, we will not affirm a trial court on alternative grounds
when those grounds require additional fact finding.
     This case is a troubling one because of the conduct of Karl
Schwarz in executing an erroneous deed and because the "correction
deed" may have been forged.  Nevertheless, we are convinced that 
16-56-111(a) is inapplicable and that summary judgment was
inappropriate.
     Reversed and remanded.