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In re Estate of Jones

Court of Appeals of Mississippi

June 5, 2018


          DATE OF JUDGMENT: 08/15/2016





          BARNES, J.

         ¶1. 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.

         ¶2. 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.


         ¶3. 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.[1] 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.[2]

         ¶4. 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.

         ¶5. 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, [3] 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."

         ¶6. 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.[4] 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.

         ¶7. 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 capacity.

         ¶8. 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;[5] 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.

         ¶9. 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 (1935)).

         ¶10. 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.

         ¶11. 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. 2010):

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).


         ¶12. 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 ...

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