Tharp v. Smith

Freddy THARP v. Velma SMITH

96-451                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered October 14, 1996


1.   Motions -- decision on motion to set aside default judgment --
     standard on review. -- The standard under which the appellate
     court reviews the granting or denial of a motion to set aside
     a default judgment is whether the trial court abused its
     discretion.   

2.   Judgment -- default judgment -- judgment establishes liability
     but not damages. -- A default judgment establishes liability
     but not the extent of damages; thus, proof must be presented
     regarding the amount of damages; the only exception to the
     proof requirement is in a suit on an account where a verified
     statement of the account is filed with the complaint. 

3.   Damages -- plaintiff must produce evidence of damages --
     defendant may produce evidence to mitigate. -- A hearing is
     required to determine the amount of damages, and the plaintiff
     is required to introduce evidence of the damages; ARCP Rule
     55(b) does not require that notice of the hearing be given to
     a defaulting defendant who has not appeared; a defendant has
     the right to cross-examine the plaintiff's witnesses, to
     introduce evidence in mitigation of damages, and to challenge
     the sufficiency of the evidence on appeal; however, after
     having received evidence, the trial court may not transform
     the judgment from one of default to one based on the merits
     such that ARCP Rule 55 no longer applies.  

4.   Judgment -- judgment of liability upheld -- no abuse of
     discretion found. -- Despite appellant's argument that he was
     justified in not answering the complaint, at the hearing on
     the motion to set aside, the trial court did not find any
     reason for setting aside the default judgment; the record was
     clear that appellant was served with summons by the sheriff
     and that he chose to deal with the dispute between himself and
     appellee by pursuing the eviction proceeding in municipal
     court; the trial court did not abuse its discretion in finding
     that there was no excuse for appellant's default. 

5.   Judgment -- default judgment proper -- appellant's argument
     without merit. -- Appellant's argument that the "reason" to
     set aside the judgment was because he had a meritorious
     defense and that a miscarriage of justice would result if he
     was not allowed to present it clearly circumvented the dual
     requirements of Rule 55(c); moreover, it ignored the cogent
     fact that the reason appellant was not allowed to present a
     defense in the first place was because of his own unexcusable
     default.

6.   Damages -- no evidence given concerning damages -- judgment
     for damages should not have been entered without hearing. --
     Where there was no verified statement of account in this case,
     appellee's complaint was not verified, there was nothing in
     the record to indicate that the trial court heard evidence
     concerning the amount of the damages, and the default judgment
     itself did not recite that it was based on any evidence being
     presented, the trial court should not have entered judgment as
     to damages without conducting a hearing where appellee should
     have been required to prove the amount of her damages and
     where appellant should have been allowed the opportunity to
     cross-examine her witnesses and to offer his own evidence of
     mitigation; a plaintiff must prove his damages against a
     defaulting defendant.   


     Appeal from Ashley Circuit Court, Second Division; Sam Pope,
Judge; affirmed in part; reversed and remanded in part.
     Johnson & Keith, by:  Paul W. Keith, for appellant.
     No response.

     Donald L. Corbin, Justice. 
     Appellant, Freddy Tharp, appeals the order of the Ashley
County Circuit Court refusing to set aside a default judgment that
awarded damages of $4,723.00 plus costs and interest to Appellee,
Velma Smith, on her complaint for damages for repairs she made to
Appellant's real property in contemplation of purchasing the
property pursuant to an oral contract.  Appellant presents two
arguments for reversal.  First, he contends the trial court should
have set aside the default judgment to prevent a miscarriage of
justice.  Second, he contends there was no evidence to support the
award of damages.  Appellant's first argument requires our
interpretation of ARCP Rule 55, specifically Rule 55(c)(4).  Thus,
our jurisdiction of this appeal is pursuant to Ark. Sup. Ct. R. 1-
2(a)(3).  We find no merit to Appellant's first argument, but do
find merit to his second argument and therefore affirm the default
judgment as to liability but reverse and remand for a hearing to
determine the amount of damages.  
     Appellee filed a complaint on June 9, 1995, alleging that
Appellant orally agreed to sell her a house he owned at 500
North Carolina Street in Crossett, Arkansas, for $4,723.00,
provided that she would repair the house, which was not in
habitable condition.  According to the complaint, Appellee
completed the repairs in good faith and tendered a check for
$4,723.00 to Appellant, who then refused the check, refused to
reimburse her for the repairs, and instead initiated eviction
proceedings against her.  The complaint listed itemized repairs in
the total amount of $2,438.00 and prayed for damages for that sum
"AND LABOR AND PUNITIVE DAMAGES IN THE SUM OF $2,562.00, PLUS ALL
COSTS AND REPRESENTATIVE OF $300. WITH 8% INTEREST PER ANNUM FROM
THE DATE OF JUDGMENT AND ALL OTHER PROPER RELIEF."  The Ashley
County sheriff served Appellant with a summons on June 20, 1995. 
Appellant did not answer the complaint or make an appearance in
this case until he filed a motion to set aside the default
judgment.  
     The record does not indicate that Appellee ever moved for a
default judgment or that a hearing was ever held.  However, the
trial court entered a default judgment for Appellee on September 5,
1995, finding that Appellant was served with a copy of the
complaint and summons but had failed to appear.  
     Appellee's counsel then filed a writ of execution and a writ
of garnishment naming First State Bank of Crossett as garnishee. 
Garnishee answered and admitted being indebted to Appellant in
excess of $5,301.13.  The trial court entered an order on
October 4, 1995, ordering the release of funds from Garnishee in
the amount of $5,301.13. 
     On October 13, 1995, Appellant filed a single motion captioned
"MOTION TO SET ASIDE JUDGMENT AND MOTION TO QUASH WRIT OF
GARNISHMENT."  The trial court set a hearing on this motion and
temporarily restrained Appellee and her counsel from disbursing the
funds released by Garnishee until the hearing could be held.  The
trial court allowed Garnishee to intervene in the case.  At the
hearing on the motion to set aside judgment, the trial court
received evidence from both Appellant and Appellee.  The trial
court entered an order denying Appellant's motion.  This appeal
followed.  Appellee did not file a brief in this appeal.
     Appellant's first point on appeal is that the trial court
erred in refusing to set aside the default judgment in toto.  He
contends that he was justified in failing to answer the complaint,
that the trial court did not consider the proper factors in making
its decision, and that a miscarriage of justice will result if he
is not allowed to present a defense.  Appellant's second point for
reversal is that the trial court erred in failing to set aside the
default judgment as to damages because there is no evidence of the
amount of the damages.  The standard by which we review the
granting or denial of a motion to set aside a default judgment is
whether the trial court abused its discretion.  B & F Eng'g, Inc.
v. Cotroneo, 309 Ark. 175, 830 S.W.2d 835 (1992).  
     It is well established that in Arkansas, a default judgment
establishes liability but not the extent of damages.  See, e.g.,
Byrd v. Dark, 322 Ark. 640, 911 S.W.2d 572 (1995); see also Rice v.
Kroeck, 2 Ark. App. 223, 619 S.W.2d 691 (1981) (giving historical
basis for this rule of law).  This rule of law is reflected in part
in ARCP Rule 8(d), which provides in part:  "Averments in a
pleading to which a responsive pleading is required, other than
those as to the amount of damage, are admitted when not denied,
either generally or specifically, in the responsive pleading." 
Thus, proof must be presented as to the amount of damages.  The
only exception to the proof requirement is in a suit on an account
where a verified statement of the account is filed with the
complaint.  Ark. Code Ann.  16-45-104 (1987).  Even assuming
arguendo that this is a suit on account, there is no verified
statement of the account in this case.  Appellee's complaint is not
even verified; it was merely signed by a paralegal identified only
as "jln" and by Appellee pro se.  See McWater v. Ebone, 234 Ark.
203, 350 S.W.2d 905 (1961) (discussing definition of "account" and
requirement of verification).
     A hearing is required to determine the amount of damages, and
the plaintiff is required to introduce evidence of the damages. 
Cotroneo, 309 Ark. 175, 830 S.W.2d 835.  In Arkansas, Rule 55(b)
does not require that notice of the hearing be given to a
defaulting defendant who has not appeared.  Divelbliss v. Suchor,
311 Ark. 8, 841 S.W.2d 600 (1992).  A defendant has the right to
cross-examine the plaintiff's witnesses, to introduce evidence in
mitigation of damages, and to challenge the sufficiency of the
evidence on appeal.  Clark v. Michael Motor Co., 322 Ark. 570, 910 S.W.2d 697 (1995).  However, after having received evidence, the
trial court may not transform the judgment from one of default to
one based on the merits such that ARCP Rule 55 no longer applies. 
Harold M. v. Clark, 316 Ark. 439, 872 S.W.2d 410 (1994).
     Appellant argues that he was justified in not answering the
complaint.  However, at the hearing on the motion to set aside, the
trial court stated that it did not find any reason for setting
aside the default judgment.  We find no abuse of discretion in this
ruling as it applies to the judgment of liability.
     Appellant testified at the hearing on the motion to set aside
that he never received service of the complaint and that he had
been out of town, but admitted that "somebody come [sic] up and
found it on the floor there."  This testimony is in direct conflict
with the summons, which clearly states that service was made on
Appellant.  Appellant explained that he thought this matter was
being attended to by the attorney he had hired to handle the
eviction proceeding in municipal court, although that proceeding
was not filed until after service was made on Appellant and
although Appellant did not even notify that attorney of the writ of
garnishment that Appellant admitted he received.  The trial court
stated that the record was clear that Appellant was served with
summons by the sheriff and that Appellant chose to deal with the
dispute between himself and Appellee by pursuing the eviction
proceeding in municipal court.  On this record, we cannot say the
trial court abused its discretion in finding that there was no
excuse for Appellant's default or that the trial court failed to
apply the relevant consideration of Rule 55(c).  
     Appellant cites Rule 55(c)(4) and argues that a miscarriage of
justice will result if he is not allowed to present a defense and
that such miscarriage of justice constitutes "any other reason
justifying relief from the operation of the judgment."  This is
nothing more than a back-door attempt to satisfy Rule 55(c), which
requires, in effect, two steps to having a default judgment set
aside.  First, a defaulting defendant must show one of the four
enumerated categories of reasons to have the judgment set aside. 
Second, if the reason is any other than that the judgment is void,
a defaulting defendant must then demonstrate a meritorious defense
to the action.  Here, appellant argues that the "reason" to set
aside the judgment is because he has a meritorious defense and a
miscarriage of justice will result if he is not allowed to present
it.  This argument clearly circumvents the dual requirements of
Rule 55(c).  Moreover, it ignores the cogent fact that the reason
Appellant was not allowed to present a defense in the first place
is because of his own unexcusable default.
     Because Appellant did not file an answer or otherwise appear
in this case, Appellee was entitled to the default as to liability
without further notice.  However, Appellee was not relieved of the
requirement of proving the amount of her damages.  There is nothing
in the record to indicate that the trial court heard evidence as to
the amount of the damages.  In fact, there is every indication to
the contrary.  At the hearing on the motion to set aside the
default judgment, Appellee testified that she did not testify as to
the amount of her damages at the time the default judgment was
entered, and the trial court stated that he did not recall whether
proof was presented or not.  Moreover, the default judgment itself
does not recite that it was based on any evidence being presented,
and we will not presume otherwise.  See Rice, 2 Ark. App. at 227,
619 S.W.2d  at 693 (quoting Dent v. Adkisson, 184 Ark. 869, 874, 43 S.W.2d 739, 741 (1931)). 
     As recited above, our law is clear that a plaintiff must prove
his damages against a defaulting defendant.  We note that, at the
hearing on the motion to set aside the default judgment, the trial
court did receive testimony from Appellee as to what repairs she
had made to the house; however, her testimony included only a
relative few specific dollar figures and the remainder of her
testimony was so vague it does not support the amount awarded by
the trial court.  We note further that the amount the trial court
awarded is the amount Appellee stated Appellant paid for the house
at auction; Appellant, however, contradicted this with testimony
that he paid $13,000 for the house pursuant to a negotiated sale. 
In any event, even if the trial court had decided to set aside or
adjust the damages at that point, it could not have done so.  We
have stated that Rule 55(c) does not authorize a trial court to
vacate a judgment for damages while the judgment on liability
stands.  Byrd, 322 Ark. 640, 911 S.W.2d 572.
     In summary, we conclude the trial court did not abuse its
discretion in refusing to vacate the default judgment as to
liability.  However, the trial court should not have entered
judgment as to damages without conducting a hearing where Appellee
should have been required to prove the amount of her damages and
where Appellant should have been allowed the opportunity to cross-
examine her witnesses and to offer his own evidence of mitigation. 
Accordingly, we affirm the judgment in part and reverse and remand
in part.