A. Jan Thomas, Jr., U.S. Bankruptcy Trustee of the Bankruptcy Estate of Toby Walker and Loretta Walker v. Marked Tree Bank and E. Ritter & Company

NOT DESIGNATED FOR PUBLICATION

ARKANSAS COURT OF APPEALS

LARRY D. VAUGHT, JUDGE

DIVISION III

A. JAN THOMAS, JR., U.S. BANKRUPTCY TRUSTEE OF THE BANKRUPTCY ESTATE OF

TOBY WALKER and

LORETTA WALKER

APPELLANTS

V.

MARKED TREE BANK and

E. RITTER & COMPANY

APPELLEES

CA02-642

March 5, 2003

APPEAL FROM THE POINSETT COUNTY CIRCUIT COURT

CIV 2001-130

HON. JOHN NELSON FOGLEMAN, JUDGE

AFFIRMED

This is an appeal from an order of the Poinsett County Circuit Court which granted appellees' motions for summary judgment regarding appellants'1 action for reformation or cancellation of a hypothecation agreement entered into with appellee Marked Tree Bank (Bank). Appellants assert that the trial court erred by granting appellees' motions for summary judgment on the basis of "unclean hands." We affirm the trial judge's decision.

For approximately twenty years appellant Toby Walker (Toby) had farmed land near Marked Tree, Arkansas, that he rented from appellee E. Ritter & Co. (Company). Since 1996, his wife, appellant Loretta Walker, had been his partner in that operation. During the entire term of their farming operation, the Walkers had conducted their banking business with the Bank.

In 1998, the Walkers' son-in-law, Brad Daniels, began farming property rented from the Company, and secured financing with the Bank in December of that year. As part of that financing, the Bank requested that the Walkers execute a hypothecation agreement which purported to pledge various pieces of equipment owned by them as security for Daniels's loan. While the Walkers did not sign the note, Toby did sign the 1998 hypothecation agreement on April 10, 1998.2 Appellants state that by the time the 1998 hypothecation agreement was signed, the proceeds of the loan had been disbursed to Daniels, and that he had already spent a substantial amount.

According to the terms of Daniels's 1998 promissory note to the Bank, the principal and interest were due and payable on April 1, 1999; however, Daniels did not pay the note when due. The carry-over debt from the 1998 loan was $57,268.75. In December 1998, Daniels successfully applied to the Bank for additional funding for his 1999 farming operation. The original complaint filed by the Walkers and Daniels against the appellees alleged that the Bank negligently failed to process that financing through the Farmer's Home Administration, but subsequently agreed to finance Daniels's 1999 farming operation itself.

Around May 1999, appellants allege that the Bank demanded that Toby secure the 1999 note from Daniels to the Bank by again pledging equipment owned by the Walkers through the execution of an additional hypothecation agreement. At first he refused to do so. Around July 1999, Toby and Daniels paid a visit to Ritter Arnold, an officer of the Company and also a member of the board of directors of the Bank. Appellants claim that Arnold informed Toby that the renewal of his own farm land lease from the Company for 1999 was conditioned upon him executing the 1999 hypothecationagreement to secure Daniels's note, basically that he could sign both documents or neither of them. The Walkers' complaint asserted that Arnold told them that the Bank would not foreclose on the equipment, but that he needed the signature on the security agreement because bank examiners were examining the records of the Bank, and the security agreement was needed for the examiners. On July 12, 1999, Toby signed both the 1999 hypothecation agreement, which pledged equipment that was already encumbered with Daniels's carry-over debt as collateral for the extension of the 1998 loan, and his own 1999 farm lease. Appellants state that at the time, the funds had already been dispersed to Daniels and substantially spent, that the Walkers gained no benefit from signing the 1999 hypothecation agreement, and that the Bank gave no consideration for Toby signing the document.

Daniels later defaulted on the 1999 loan to the Bank. The Bank foreclosed on the promissory note and the security agreement signed by Toby, which caused the Walkers to lose the pledged equipment. The Bank asserts that the repossession and sale of the equipment in question brought the sum of $29,000.00, leaving a deficiency of $35,588.75 owing to the Bank after adding additional costs for collection.

The Walkers and Daniels originally sued the Bank for breach of fiduciary duty, i.e., lender liability. They also sued the Company for interference with contractual relations regarding the alleged coercion used to force Toby to sign the 1999 hypothecation agreement. The Bank and Company each filed motions to dismiss for failure to state a cause of action and for summary judgment. As part of their response to the motions filed by the Bank and Company, the Walkers filed their first amended complaint which added a claim to either reform or cancel the 1998 hypothecation agreement. Attached was an affidavit from Toby alleging that the president of the Bank, Phillip Marshall, stated that the 1998 hypothecation agreement "was just something to showthe Bank board of directors and the bank examiners and that it did not make me [appellant Toby Walker] liable for anything." Counsel for the Walkers agreed that if the 1998 hypothecation agreement was valid, then they had no valid cause of action regarding the 1999 hypothecation agreement because the loss of their equipment would have occurred pursuant to the default on the 1998 note and hypothecation agreement.

There was a hearing on January 2, 2002, before the Poinsett County Circuit Court, at which time the motions for summary judgment were granted. The trial judge found that, although he considered everything in Toby's affidavit to be true, none of the issues raised by the affidavit created an issue of material fact; and that appellants were not entitled to nullify the 1998 hypothecation agreement because they were guilty of "unclean hands," because of Toby's admission that it was executed to mislead the Bank board and examiners. The Walkers filed a motion for new trial, alleging that "unclean hands" was neither pled nor argued by the attorneys, and that it presented a question of fact rather than of law, but that motion was denied. From the grant of summary judgment comes this appeal.

The Arkansas Supreme Court recently restated our standard of review with regard to summary judgment in Smith v. Rogers Group, Inc., 348 Ark. 241, 72 S.W.3d 450 (2002):

Summary judgment is no longer viewed by this Court as a drastic remedy; rather, it is viewed simply as one of the tools in a trial court's efficiency arsenal . . . . Once the moving party has established a prima facie entitlement to summary judgment the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact.

348 Ark. at 249, 72 S.W.3d at 455. However, we are also reminded that summary judgment should be granted only when it is clear that there are no genuine issues of material fact to be litigated and the moving party is entitled to judgment as a matter of law. Id. All proof must be viewed in thelight most favorable to the nonmoving party, and any doubts ··²SDU_28²····²SDU_28²··must be resolved against the moving party. Id.

Appellants contend that the doctrine of "unclean hands" was neither raised in the appellees' motions for summary judgment nor argued by counsel at the hearing on those motions, and that instead, the trial judge asserted it on his own accord as the basis for granting summary judgment. Appellants further argue that "unclean hands" is an affirmative defense that had to be pled in an answer in order to be raised as a defense in appellees' motions. See Ark. R. Civ. P. 8. They maintain that the issue was not properly before the court and should not have been considered.

Additionally, appellants state that "unclean hands" is a maxim of equity, and may only be used by balancing the equities between the parties. They assert that the judge failed to balance the equities as required, see McCune v. Brown, 8 Ark. App. 51, 648 S.W.2d 811 (1983), and instead ruled on the issue as a matter of law. They cite Roark v. Roark, 34 Ark. App. 250, 253, 809 S.W.2d 822, 824 (1991), in which this court stated, "Whether the parties are within the application of the [unclean hands] maxim is primarily a question of fact."

Neither party disputes that Phillip Marshall was the president of the Bank at the time the 1998 hypothecation agreement was signed. Appellants argue that there should be an assumption that a factual question exists as to whether Marshall made the statement that the 1998 hypothecation agreement "was just something to show the Bank board of directors and the bank examiners and that it did not make me [appellant Toby Walker] liable for anything." They state that if Marshall did make the statement, and the statement was something that could be the basis of fraud or other wrongdoing, then the alleged wrongful conduct was at least as great on the part of the Bank as on the part of appellant Toby Walker. They claim that they were entitled to show that they were "prettywell on the same level in respect to the condition of their hands." See Wyatt v. O'Neal, 236 Ark. 798, 801, 370 S.W.2d 129, 131 (1963).

Appellees, however, respond that it was appellant Toby Walker's own statement in his affidavit, which was argued at the summary judgment hearing, that was the basis for the judge's ruling. What the judge concluded, without elaborating as to the details, was that it was in fact the Walkers who were arguing the "unclean hands" maxim through the statement in the affidavit. They were seeking to reform or cancel the 1998 hypothecation agreement, and in response to the appellee's motions for summary judgment they submitted the affidavit to try to invalidate the agreement because of the alleged comments by the Bank's president. In effect, the judge determined that, taking everything in Toby's affidavit as true, appellants were trying to get out of an agreement that they knew had been entered into to mislead or defraud the Bank's board of directors and/or examiners. While we are persuaded by appellants' argument that the trial judge's reliance on the "unclean hands" maxim as the rationale for his decision was not the proper basis, we will, however, affirm a ruling of the trial court, including a grant of summary judgment, where the trial court reached the correct result for the wrong reason. See American Investors Life Ins. Co. v. Butler, 76 Ark. App. 355, 65 S.W.3d 472 (2002).

In granting the appellees' motions for summary judgment the trial court concluded that even assuming appellants' allegations regarding the procurement of the agreement were true, there was no material issue of fact to be decided. Toby himself asserted that he had engaged in the business of farming for almost twenty years and was well versed in the procedures of leasing farm land and financing farm operations through his long-standing experience with the appellees. Our review of the record, including the 1998 hypothecation agreement, shows that the document was clear in its terms and that Toby did in fact sign it. It is a long-standing rule that one is bound under the law toknow the contents of the papers he signs, and cannot excuse himself by saying that he did not know what the papers contained. National Union Fire Ins. Co. of Pittsburgh, Penn. v. Guardtronic, Inc., 76 Ark. App. 313, 64 S.W.3d 779 (2002). Appellant understood, or should have understood, the terms of the 1998 hypothecation agreement.

By admitting in his affidavit that he was aware of the Bank's intention to mislead or defraud the Bank's board of directors and/or examiners, it shows that Toby nevertheless executed the agreement, and is therefore barred from invalidating the agreement regardless of what was said by the Bank's president. No additional time, evidence, etc., would have "undone" his admission that he entered into the transaction knowing of the Bank's purported intentions.

In reviewing summary judgment cases, we need only decide if the granting of summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion left a material question of fact unanswered. Chambers v. Stern, 347 Ark. 395, 64 S.W.3d 737 (2002). While we disagree with the basis articulated by the trial judge, we cannot find that he erred in finding that there was no material question of fact unanswered and in granting appellees' motions for summary judgment. Accordingly, we affirm.

Additionally, on August 26, 2002, appellee E. Ritter & Company filed a motion for $228.50 in costs associated with their submission of a supplemental abstract of the summary judgment hearing. We hereby grant the motion for the full amount requested.

Affirmed.

Stroud, C.J., and Neal, J., agree.

1 On January 9, 2003, appellants Toby and Loretta Walker filed a Chapter 7 bankruptcy petition. On February 6, 2003, they filed a motion to substitute A. Jan Thomas, Jr., U.S. Bankruptcy Trustee, as appellant herein. This court granted the motion on February 18, 2003.

2 Although the 1998 hypothecation agreement in the record is dated March 10, 1998, the notary public information at the bottom of the page was shown as April 10, 1998, which corresponds to the date on the note.