P/T Ltd. II v. Friendly Mobile Manor, Inc.

BLOOM, Judge. Appellant, P/T Ltd., II (P/T), which had purchased from appellee Friendly Mobile Manor, Inc. (Friendly) a mobile home or trailer park, together with a number of mobile homes situated on the premises, brought a declaratory judgment action in the Circuit Court for St. Mary’s County against Friendly and two of its officers, appellees John S. Weiner and Kenneth C. Rossignol. P/T sought a declaration that it has no liability under certain outstanding retail installment contracts on the mobile homes included in the sale of the trailer park beyond the value of its interest in the collateral and that it has no liability for any other obligations secured by or related to those mobile homes. Upon motion, the complaint was dismissed as to Weiner and Rossignol on the ground that the complaint sought no relief against them.

They were not deemed to be necessary parties despite the fact that they had personally guaranteed some of the underlying debts on the mobile homes. Friendly filed an answer to P/T’s complaint and a counterclaim seeking a declaratory judgment that neither it nor any of the financing banks would be liable to P/T for “site rent” with respect to the 22 mobile homes in question. After a non-jury trial, the court delivered its judgment orally and, pursuant to the court’s direction, the clerk entered it on the docket on March 4, 1988, as follows: Decision of the Court that the Declaratory Judgment be entered decreeing that P/T Ltd., II has assumed liability on the Mobile Homes retail contract as stated in Agreement of Sale. The Counterclaim — Declaratory Judgment entered by Agreement and Stipulation of parties that P/T Ltd., II as the owner of the finance [sic] Mobile Homes is not entitled to Site Rent as against Friendly Mobile ²³⁰ Manor or Financial [sic] Banks.

Judgment effective today. In this appeal P/T asserts that the court erred in concluding that P/T assumed the retail installment indebtedness on the 22 financed mobile homes and that it had earlier erred in dismissing the complaint as to appellees Weiner and Rossignol. Facts Friendly owned and operated a 12.3 acre mobile home trailer park, formerly known as “Friendly Manor,” with its primary business the sale of mobile homes and the rental of mobile home sites to owners of mobile homes. On October 18, 1986, Friendly entered into an agreement of sale with Leonard S. Homa in which Mr. Homa purchased Friendly’s real property together with 30 mobile home trailers located in the park.

Several of those mobile homes were subject to liens, installment sales contracts, held by various financial institutions that had financed the original purchases of the homes. Friendly had assumed responsibility for payment of those liens when it acquired the homes from the original purchasers. 1 The agreement of sale was prepared by Mr. Homa and expressly provided in section 2(a)(iv): In addition, Purchaser shall also assume the retail installment contracts on those 25 mobile homes owned by Seller and located in Friendly Mobile Manor Park and being more fully described in Exhibit E. ²³¹ Although there was no document identified as Exhibit E attached to the contract, a list of 22 mobile homes was subsequently made and treated as if it were the document referred to in section 2(a)(iv). It is undisputed that section 2(a)(iv) required Mr. Homa to assume the indebtedness on the financed mobile homes. On December 2, 1986, Mr. Homa assigned to P/T all his “right, title and interest” in his agreement of sale with Friendly.

During the negotiations leading up to that assignment, P/T’s founder, William T. Poole Jr., made it perfectly clear to Homa that under no circumstances would he (Poole) or the corporate assignee (P/T) assume any liability for the debts on the trailers beyond recourse of the lienholders to the trailers themselves. Homa’s testimony at trial confirmed the assignee’s position on that point, and there was no evidence to the contrary. At the settlement between Friendly and P/T, which was held the next day, Friendly presented a bill of sale for the 22 mobile homes, which provided: P/T Ltd. II hereby agrees to assume the principal balance of the mobile home installment loan on the twenty-two (22) homes as designated above. P/T refused to sign or accept the Bill of Sale with that debt assumption language, and after lengthy discussion a revised bill of sale executed by Friendly was tendered and accepted by P/T. It provided: Friendly Mobile Manor, Inc. hereby conveys all of its right, title and interest in the thirty (80) above designated homes____ Friendly Mobile Manor, Inc. further certifies the accuracy of the principal balances contained on the foregoing page, and warrants that all payments are currently [sic] through December 1, 1986.

Although P/T adamantly refused to agree to accept liability for the underlying debts on the mobile homes, it did orally agree to remit monthly payments to the banks that had financed the original purchases of the mobile homes out of rents it collected from the tenants of those homes. In ²³² the early months of 1987, the tenants occupying some of the financed mobile homes were evicted for non-payment of rent. Since it no longer received rent from the occupancy of those trailers, P/T failed to make the monthly installment payments due thereon. As a consequence, the holders of the security interests on eleven mobile homes foreclosed on them.

Demand was made upon P/T and Friendly for deficiencies remaining after the foreclosure sales. P/T’s reaction to those demands was the filing of this declaratory judgment action. After answering P/T’s complaint, Friendly filed a separate action against Homa and his law firm, alleging that Homa had been retained by Friendly to prepare appropriate documents in connection with the sale of the trailer park and to represent Friendly at settlement. Friendly asserted that Homa assured it at settlement that the assumption of installment contracts language (Section 2(a)(iv)) in the contract between Friendly and Homa that Homa assigned to P/T imposed upon the assignee the duty to pay the underlying debts in the trailers.

Friendly contended that if P/T succeeded in its declaratory judgment suit, Homa and his law firm should be liable for malpractice under theories of breach of contract or negligence or for fraud. Friendly did not implead Homa in P/T’s action against it, nor did it assert any claim against Homa based upon his assumption of the underlying debts on the trailers by virtue of Section 2(a)(iv) of the contract of sale. I P/T contends that it did not become liable for Mr. Homa’s contractual obligation to assume the underlying installment debts on the financed mobile homes by virtue of Homa’s assignment to it of the contract between Homa and Friendly. It relies heavily on the undisputed fact that it had refused to execute the initial bill of sale which provided for such an assumption.

P/T maintains that any liability relating to its purchase of the financed mobile homes is limited to the value of the mobile homes, namely, loss of its ²³³ ownership interest in the chattels through repossession, and that Homa and/or Friendly is responsible for any foreclosure deficiencies that might be claimed by the lending institutions that had financed the mobile homes. Friendly contends that although the initial bill of sale was modified to delete any debt assumption language, P/T nevertheless assumed the indebtedness because there was not a similar deletion of the debt assumption language provided in section 2(a)(iv) of the original contract. In its oral opinion, the trial court found P/T liable for the retail loan installment indebtedness based upon the assumption language of section 2(a)(iv) of the agreement of sale between Homa and Friendly. The court was of the opinion that an assignment of rights under a contract automatically results in the assignment of the contractual obligations unless there is an express writing to the contrary.

It stated: The court further finds that Mr. Poole [who dealt with Homa and founded P/T Ltd., II to acquire Homa’s interest in the contract with Friendly] desired to be relieved of liability. Throughout the testimony the court finds that it was always talking about liability to the banks, to the lenders that he was interested in. Now, probably in his mind he wanted to be relieved of any liability to anyone whatsoever as to these retail installment contracts if they went sour, and if indeed the banks started looking to recover deficiencies. Now, if, indeed, Mr. Poole had had independent advice it is this court’s opinion and he said I do not want to be responsible whatsoever to anyone if these trailers, rent doesn’t come in, and we can’t make the payments and they get sold, and because the trailers depreciate because they are not like homes, that do appreciate, there is going to be a deficiency and I do not want to answer to anyone for that, and he would have, indeed, said so in writing in ²³⁴ that contract or totally excepted and excluded these mobile homes in the transaction.

That was not done. It is very clear when you take all of the rights and obligations under a contract, you concurrently assume all duty and responsibilities, unless you are relieved of them in writing. Therefore, the court finds that P.T. is liable to the sellers as the term goes on those installment contracts as one of the terms of that original contract [the October 18, 1986, agreement of sale]. Contrary to the trial court’s reasoning, under the common law there is no implied assumption by an assignee of his assignor’s obligations under the original contract merely by virtue of the assignment.

In the context of real property transactions, the Court of Appeals has held that an assignee must expressly assume any correlative duties with the rights assigned in order to be liable for such duties under the contract. See Pumphrey v. Kehoe, 261 Md. 496, 506 , 276 A.2d 194 (1971); East Vedado Corp. v. E.S. Adkins & Co., 157 Md. 416, 418-19 , 146 A. 385 (1929). In the case sub judice, there was never an express writing or statement by P/T to assume Mr. Homa’s obligations or the indebtedness of the financed mobile homes pursuant to section 2(a)(iv) of the contract of sale. The rule is somewhat different with respect to assignments of contracts for the sale of goods.

Friendly contends that the present sales contract falls under the Uniform Commercial Code, Md.Comm.Law Code Ann. (1975), § 2-210(4), which provides that an assignment of rights under a contract “is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise to perform those duties” absent the assignee’s express negation of those duties. For the U.C.C. to govern, however, the contract must be for the sale of “goods” as defined in CL § 2-105(1). Al ²³⁵ though the sale of a mobile home has been determined to be a sale of “goods,” Lewis v. Hughes, 276 Md. 247 , 346 A.2d 231 (1975), the contract involved in this case was a “hybrid contract” for the sale of both real estate and goods. The type of hybrid contracts that the Court of Appeals and this Court have heretofore considered involved sales of both services and goods.

As to such contracts we have generally followed the predominant purpose test adopted by a majority of jurisdictions: whether a hybrid contract is to be classified as a sale of services or as a sale of goods coming under the U.C.C. depends upon the predominant purpose of the contract. See, e.g., Comptroller v. Equitable Trust Co., 296 Md. 459, 469 , 464 A.2d 248 (1983); Anthony Pools v. Sheehan, 295 Md. 285, 293 , 455 A.2d 434 (1983); DeGroft v. Lancaster Silo Co., 72 Md.App. 154, 167 , 527 A.2d 1316 (1987). Appellant contends that it is logical to apply the same test to hybrid contracts for the sale of both goods and realty. Here, the sale of the real estate represents $686,000 of the $774,000 purchase price.

Under the predominant purpose test, the contract between Homa and Friendly that Homa assigned to appellant is clearly one for the sale of real estate, with the sale of goods, the mobile homes, being only incidental to the primary purpose of the contract. Under that test, therefore, the U.C.C. would be inapplicable and, by virtue of the holdings of Pumphrey v. Kehoe, supra, and East Vedado Corp. v. E.S. Adkins & Co., supra, P/T, as assignee, would not be responsible for the underlying debts its assignor had undertaken to pay because it had not expressly agreed to assume that obligation. Appellees argue that we should apply a different test, the “gravamen” test advocated in 1 W. Hawkland, Uniform Commercial Code Series (1982), § 2-102:04, at Art. 2, p. 12, which the Court of Appeals used in Anthony Pools v. Sheehan, supra. That case involved personal injuries allegedly sustained as a result of a defect in a diving board sold and installed as part of a hybrid contract for the sale of goods and services, i.e., labor and materials for the construction of a swimming pool.

At issue was a warranty disclaimer that would be ineffective to negate the implied