Charles Stewart and Jeannie Stewart v. Pauline Martin et al.

DIVISION I

Not Designated for Publication

Arkansas Court of Appeals

Judge Josephine Linker Hart

CA00-709

September 12, 2001

CHARLES STEWART and JEANNIE AN APPEAL FROM PULASKI COUNTY

STEWART CHANCERY COURT

APPELLANTS NO. IJ99-449

V.

HONORABLE MACKIE PIERCE,

PAULINE MARTIN, et al. CHANCELLOR

APPELLEES

AFFIRMED

Charles and Jeannie Stewart appeal from a chancery court order determining that nearly twenty years of escrow overpayments made to them by appellee Pauline Martin and her predecessor in interest with respect to a 1979 Purchaser's Agreement and real estate note should be counted as payments toward principal and interest on the note. The chancellor also ordered the Stewarts to pay certain foreclosure costs and attorneys fees that arose when they failed to maintain the payments they owed on a first mortgage on the subject property during the pendency of this action, in violation of the chancellor's interim order. On appeal, the Stewarts argue that the chancellor erred in (1) ordering retrospective application of insurance escrow payments to debt principal and therefore reforming the agreement of the parties, and (2) finding that they breached their agreement, misapplied funds, or violated the order of the court and awarding judgment against them. We affirm.

Appellant Charles Stewart purchased a home in Pulaski County in 1976 and financed it with a thirty-year note to a predecessor of appellee First Financial Bank (hereafter FFB). His monthly payments of $300 included approximately $9.46 for insurance premiums. In 1979, he and his wife, appellant Jeannie Stewart, sold the home to Florida Martin by entering into a real estate sale agreement and separate promissory note signed by Mrs. Martin. The thirty-year note called for a payment of principal and interest of $271.97 and an escrow payment of $58.03 that included $42.62 for taxes and $15.41 for insurance, for a total payment of $330 per month. Charles Stewart continued to be liable for payments on his own note to FFB.

Upon purchasing the home, Mrs. Martin acquired her own property insurance. However, she continued to pay appellants $330 per month, which included $15.41 for insurance premiums. Appellants became aware soon after the sale that Mrs. Martin had elected to furnish her own insurance. In fact, in August 1979, appellants' escrow payment to FFB was reduced by $9.46 per month. Further, in June 1980, Mrs. Martin's property manager, appellee John Collins Rogers (hereafter JCR), sent a letter to appellants informing them that, upon closing, Mrs. Martin's son had asked that an insurance policy be written. The letter inquired as to whether the $58.03 for taxes and insurance "should have been only for taxes...." No response to this letter is shown in the record. In July 1986, JCR sent another letter to appellants, which stated the following:

According to our records, Mrs. Martin has paid the insurance premium... rather than escrow pay, so there may be an overlap on the escrow account. We would appreciate it if you would furnish us with a copy of the year-end statement mailed [to] you by [FFB] for the years 1979-1985. We could then audit the account and adjust the principal balance if necessary.

Again, there is no evidence that appellants responded to the letter.

Around the same time the last letter was sent, JCR decided on its own to recalculate Mrs. Martin's monthly payments retroactive to her 1979 purchase date. As a result, the $15.41 originally intended as payment for insurance was allocated to principal and interest. A revised amortization schedule was prepared retaining the $330 per month payment, but assigning $287.38 per month, rather than $271.97 per month, to principal and interest, a difference of $15.41. Appellants were not directly notified of this recalculation.

When Mrs. Martin died in 1992, the property was transferred to appellee Pauline Martin, who continued to make payments on the note. In December 1998, Pauline was in the process of selling the house to Ethelene McCarrell, a long-time tenant on the property. Seeking to pay off the note, JCR forwarded a check to appellants in the amount of $11,927.89. That amount was based on the new amortization schedule created by JCR in 1986. After appellants refused to accept the check, Pauline Martin, John Collins Rogers, and Ethelene McCarrell sued appellants in Pulaski County Chancery Court, interpleading the $11,927.89 and asking, inter alia, that appellants be ordered to accept that amount as full payment on the note. Appellants responded that the balance due on the note was actually $22,177.20 and further sought to exercise a contractual option to rescind the agreement and retain all funds previously paid as rent or, in the alternative, to have the court declare a default and find that the pay-off of $22,177.20 was proper. They also sought attorney fees. In a temporary decree, the chancellor ordered appellees to continue payments on the note and ordered appellants to stay current on the debt to FFB.

At trial, Charles Stewart testified that he was never informed of JCR's decision to allocate $15.41 per month to principal and interest, although he was aware that Mrs. Martin had purchased her own insurance coverage. Stewart offered no evidence that the $15.41 originally designated for insurance premiums was set aside or placed in an escrow account. Instead, he testified that he considered the amount to be part of his profit on the transaction. Appellees could not produce evidence that they had directly informed appellants of the reallocation of $15.41 per month to principal and interest. However, they introduced copies of checks written to appellants over the life of the note. All checks written between October 1990 and December 1997 bore notations regarding the portion of each payment designated for principal, interest, and escrow. The figures identified with a "P" or "Prin." for principal and an "I" or "Int." for interest, totaled $287.38 when added together.

On December 2, 1999, the chancellor issued a decree finding it would be inequitable for appellees to pay any more for the property than they had interpled at the beginning of the lawsuit. He dismissed Charles Stewart's testimony that the $15.41 overpayment was profit by citing McNeill v. Rowland, 198 Ark. 1094, 132 S.W.2d 370 (1939), which held that, when a debtor pays money to a creditor, it is presumed that the money was intended as payment on a debt, not as a gift. In short, he found that the adjustment in the amortization was proper, that $15.41 per month was correctly allocated to principal and interest, and that appellants should convey title to Pauline Martin. Appeal is brought from that ruling.

We review chancery cases de novo on appeal, but we will not reverse a chancellor's findings unless they are clearly erroneous. McEntire v. Watkins, 73 Ark. App. 449, 43 S.W.3d 770 (2001). A finding is clearly erroneous when, although there is evidence tosupport it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake was committed. Id.

Appellants contend first that the $15.41 per month should have been accounted for as an escrow surplus. A trial exhibit purports to show that such a surplus would have amounted to $2,719.85, had the $15.41 per month been applied to escrow. However, appellants offered no evidence that they actually applied or intended to apply the excess $15.41 per month toward escrow-type expenses or that they placed or ever intended to place that amount in an escrow account. Instead, Charles Stewart testified unequivocally that he considered the extra payments to be his own profit. Having so testified, it is contradictory for him to now contend that the payments should be applied to escrow expenses.

Second, appellants argue that appellees, by reallocating the $15.41 without notice to them, unilaterally modified the terms of the note. Our supreme court has recognized that parties are free to modify their contract, but it is essential that both parties agree to the modification and its terms. See City of Lamar v. Clarksville, 314 Ark. 413, 863 S.W.2d 805 (1993). However, it is not necessary that mutual assent to a modification be express; it may be implied from acts and circumstances, and from the conduct of the parties. See 17A C.J.S Contracts § 410 (1999). We acknowledged as much in Rice v. McKinley, 267 Ark. 659, 590 S.W.2d 305 (Ark. App. 1979), when we said that "appellant appears to have both expressly and impliedly accepted and concurred in those modifications by acting on the contract in numerous ways and having received the benefits of the agreement over several years...." Id. at 661, 590 S.W.2d at 307. Given appellants' knowledge soon after the execution of thecontract that the $15.41 was not necessary to procure insurance coverage and the many checks that they received showing that very amount added to principal and interest, we cannot say that the chancellor clearly erred in his ruling.1

The remaining issue concerns certain orders entered by the chancellor subsequent to the order just discussed. On December 28, 1999, FFB filed a foreclosure suit because appellants were approximately four months in arrears on payments. On March 21, 2000, the chancellor determined that, because appellants had failed to stay current on the FFB debt as previously ordered, they should be held liable for all excess interest, foreclosure fees and attorney fees of FFB and any attorney fees that might be incurred by appellees in a breach of contract action. Appellants now argue that they have committed no act that would merit such an award against them. Their argument encompasses two paragraphs without citation to authority and without sufficient development of their point. We therefore decline to address this issue. Arguments unsupported by convincing argument or authority will not be considered unless it is apparent without further research that the argument is well-taken. Thomson v. Littlefield, 319 Ark. 648, 893 S.W.2d 788 (1995).

Affirmed.

Pittman and Roaf, JJ., agree.

1 Although the chancellor did not employ this exact line of reasoning, we are free to affirm a chancellor for a different reason than the one which formed the basis for his decision. Alexander v. Twin City Bank, 322 Ark. 478, 910 S.W.2d 196 (1995).