IN THE MATTER OF THE ESTATE OF GEORGE LEE JONES, DECEASED: JIMMY FAIRCHILDS, EXECUTOR OF THE ESTATE OF GEORGE LEE JONES, DECEASED APPELLANT
DELTA FOUNDATION INC. APPELLEE
OF JUDGMENT: 08/15/2016
COUNTY CHANCERY COURT, HON. VICKI R. BARNES.
ATTORNEY FOR APPELLANT: FRANK G. VOLLOR.
ATTORNEY FOR APPELLEE: TONYA P. FRANKLIN.
IRVING, P.J., BARNES AND WILSON, JJ.
This dispute stems from two probated claims against George
Jones's estate by creditor Delta Foundation Inc. (Delta)
in the Chancery Court of Warren County. The two claims of
$88, 740.05 and $116, 228.17 relate to two promissory notes
taken out by Three Rivers Transit Inc. (Three Rivers) in 2005
and renewed in 2008. In 2005, Jones signed the notes
individually and on behalf of Three Rivers. In 2008, however,
he did not sign the notes individually but only on behalf of
Three Rivers. Jones passed away, and Delta probated its
claims, attaching the 2008 notes. The executor of Jones's
estate (the Estate) objected, claiming that the debt belonged
to Three Rivers, not Jones individually. Delta filed a motion
to amend its probated claims in order to attach the 2005
notes. The motion was granted, but the 2008 notes were again
erroneously attached to the claims.
Delta then filed an "amended motion to amend probate
claim" to correct the error, which is the subject of
this appeal. The Estate again objected, arguing that the 2005
notes were extinguished by the 2008 notes. After a hearing,
the chancellor granted Delta's motion to amend the
probated claims. Aggrieved, the Estate appealed the ruling.
OF FACTS AND PROCEDURAL HISTORY
Jones operated Three Rivers, a business which transported and
set up mobile and manufactured homes. Delta is a non-profit
organization that assists small-business owners with
financing their operations in order to encourage them to
remain in rural areas. Documents entered into evidence
establish that in February 2000, a "Loan
Transaction" was entered into between Three Rivers and
Delta evidenced by a promissory note and deed of trust to
secure a loan of $122, 750, maturing March 1, 2007. The deed
of trust was signed by Jones on behalf of the
"Debtor" Three Rivers. On the same date, Jones and
his wife executed two deeds of trust to Delta to secure the
loan of $122, 750 and another loan of $152, 250 to Three
Rivers, also maturing on March 1, 2007.
On January 15, 2005, Jones and Lee Pinkston executed two
promissory notes "Individually and on behalf of Three
Rivers Transit, Inc." Loan number 56 included a
principal of $109, 787.57 and loan number 113 of $141,
319.32, with monthly payments of $1, 111.54 and $1, 430.79
respectively. The "Borrowers" were Three Rivers,
Jones, and Pinkston. Both loans were provided at a
four-percent interest rate for 120 months, with the final
payment due in January 2015. The notes recited that they were
secured by a security agreement which encumbered certain
personal property of the Joneses. The 2005 notes provide:
Borrowers waive demand, protest, presentment, notice of
demand, protest, nonpayment and dishonor, and all other
notices. No extension of time for the payment of this
Promissory Note made by agreement with any person now or
hereafter liable for the payment of this Promissory Note
shall operate to release, discharge, modify, change, or
affect the original liability under this Promissory Note of
Borrowers, either in whole or in part, if Borrowers are not a
party to such agreement.
On September 22, 2008, the loans were renewed. The
"Borrower" was Three Rivers. The monthly payments
were lowered, the interest rate was increased, and the final
payment dates were extended. The loan numbers of 56 and 113
did not change, and the principal amounts had been reduced to
$91, 801.15 and $117, 570.39, respectively, with monthly
payments of $1, 065.89 and $1, 365.09. The interest rate was
increased to seven percent for 120 months, with the final
payment due in October 2018. The note recited that it was
secured by several parcels of real property: approximately
nine acres of land for Three Rivers' shop in Vicksburg,
Jones's home in Vicksburg,  and two acres in West,
Mississippi, as well as a 2008 life insurance policy for
$200, 000. The notes specify that the lender is not required
to rely on this security "but may proceed directly
against the Borrower."
Importantly, while the 2008 promissory notes were again
executed by Jones and Pinkston, the signature block was
different from the 2005 notes. On these later notes, Jones
signed under the typed name "Three Rivers" without
any indication of agency status, but also without any
indication of individual liability. Pinkston signed the notes
as a partner and guarantor. The notes state:
No renewal or extension of this Note, delay in enforcing any
right of the Lender under this Note, or assignment by Lender
of this Note shall affect the liability or obligations of the
Borrower. All rights of the Lender under this Note are
cumulative and may be exercised concurrently or consecutively
at the Lender's option.
In May 2012, while driving for the company, Jones was
tragically killed in a motor- vehicle accident. His estate
was opened in the Warren County Chancery Court. The first
publication for creditors was issued on March 6, 2013. Delta
timely filed two probated claims of $88, 740.05 and $116,
228.17 respectively for each loan. The Estate objected to
both probated claims, arguing the indebtedness belonged to
Three Rivers, not Jones individually, due to the fact that
Jones had not signed the 2008 notes in an individual
In March 2015, a hearing was held on the claims, where
counsel for Delta claimed she had attached only the 2008
notes and loan-payoff schedule to the claims and
inadvertently failed to attach the notes signed in
Jones's individual capacity. The chancellor continued the
hearing, and Delta filed a motion to amend its probated
claims in order to attach the individual notes. In its
motion, Delta stated the indebtedness was incurred by Three
Rivers, Jones individually, and Pinkston individually, and
the intended purpose of the notes was for Three Rivers and
Jones to be responsible for the debt. Delta argued that
nothing had changed in its probated claims; the additional
promissory notes would be merely "additional
documentation of the claim, " as required by statute,
that "simply perfect[ed] the claim as filed." The
chancery court granted the motion.
Accordingly, in June 2015, Delta filed the amended probated
claims, but again attached the same 2008 notes and payoff
schedule that had been originally offered. Delta then filed
an "Amended Motion to Amend Probate Claim, "
finally attaching the 2005 notes. Delta attached the same
Loan Payoff sheet as it had for the 2008 notes, again
calculating the debt pursuant to a seven-percent interest
rate. The Estate renewed its objection, arguing that
Delta's inadvertent omission of the 2005 promissory notes
executed by Jones in his individual capacity was irrelevant
because the 2005 notes were "superseded and
nullified" by the execution of the 2008 notes as a
matter of law, and Jones was no longer responsible for the
debt. The Estate claimed the 2008 notes constituted a
"novation" which extinguished the 2005 notes. The
Estate cited several cases to the effect that "the
execution of a renewal note with full knowledge of the facts
constituting a defense to the original note waives that
defense as to the renewal, " and the debtor
"becomes obligated to pay the new note." See,
e.g., Citizens Nat'l Bank v. Waltman, 344
So.2d 725, 728 (Miss. 1977) (citing Gay v. First
Nat'l Bank, 172 Miss. 681, 686, 160 So. 904, 905
In reply, Delta argued the inapplicability of the
Estate's cases because Delta was not asserting a defense,
but rather a cause of action to enforce Jones's promise
to pay the debts. Additionally, Delta denied the execution of
the 2008 notes constituted a novation, citing Greenwood
Leflore Hospital Commission v. Turner, 213 Miss. 200,
206, 56 So.2d 49, 497 (1952), in support of the proposition
that a novation requires the addition of a new party.
Secondly, Delta argued that the parties did not intend a
novation, and the creditor did not assent to it, as required
in First American National Bank of Iuka v. Alcorn
Inc., 361 So.2d 481, 487 (Miss. 1978), Mississippi
Motor Finance Inc. v. Enis, 254 Miss. 625, 628-29, 181
So.2d 903, 904-05 (1966), and Morgan v. Jackson-Mix
Concrete, 247 Miss. 863, 886, 157 So.2d 772, 780 (1963).
Delta also argued that while assent to a novation can be
express or implied, here there was no express assent and no
evidence of an implied assent. See Amer. Blakeslee Mfg.
Co. v. Martin, 128 Miss. 302, 91 So. 6 (1922). Finally,
Delta claimed that if a novation was intended upon execution
of the 2008 notes, the collateral pledges and the lien
against the Joneses would have been released.
The chancellor entered a final judgment allowing Delta to
amend its probated claim and attach the 2005 notes. She
quoted from two cases - First American National
Bank, 361 So.2d at 487-88: "A novation involving
substitution of debtors is a contract that discharges at once
an existing obligation and creates a new contractual
obligation by including as the new obligor a party who was
not previously obligated"; and Harris v. Tom
Griffith Water Well & Conductor Service
Inc., 26 So.3d 338, 341 (¶¶10-11) (Miss.
A novation may occur where the debt remains the same, but a
new debtor is substituted. In such event, the original debtor
is acquitted, his obligation is extinguished, and the
creditor contents himself with the obligation of the second
debtor. Miss. Ins. Guar. Ass'n v. MS Cas. Ins.
Co., 947 So.2d 865, 871 (Miss. 2006) (quoting
Greenwood Leflore Hosp. Comm'n v. Turner, 213
Miss. 200, 56 So.2d 496, 497 (1952)). See also First Am.
Nat'l Bank of Iuka v. Alcorn, Inc., 361 So.2d 481,
487 (Miss. 1978) (citing Miss. Motor Fin., Inc. v.
Enis, 254 Miss. 625, 181 So.2d 903 (1966)). The
Restatement of Contracts defines novation as a contract that
(a) discharges immediately a previous contractual duty or a
duty to make compensation, and (b) creates a new contractual
duty, and (c) includes as a party one who neither owed the
previous duty nor was entitled to its performance.
Restatement (First) of Contracts § 424 (1932). In other
words, a novation involves a substituted contract.
(Internal quotation marks omitted).
This case presents questions of fact and law. For questions
of fact, "[w]e will not disturb the findings of a
chancellor when supported by substantial evidence unless the
chancellor abused [her] discretion, applied an erroneous
legal standard, was manifestly wrong, or was clearly
erroneous." Harris, 26 ...