Keota Mills & Elevator v. Gamble

2010 OK 12, 243 P.3d 1156, 2010 Okla. LEXIS 12, 2010 WL 528220

• Court: Supreme Court of Oklahoma
• Decided: February 16, 2010
• Docket: 103,149
• Status: Published

Opinions

KAUGER, J.;

{1 This cause concerns an attempt to recover on a defaulted promissory note. The dispositive question presented is whether partial payment on the note extended the time within which to bring an action. The parties stipulated that the issue was whether the suit was time-barred by the five year limitation period of 12 0.98.1981 ¹ which was in effect in 1989 when the note was executed, or the six year limitation period of the Uniform Commercial Code (UCC) 12A O0.S. Supp.1992 § 3-118(a),² which became effective January 1, 1992.

T2 However, reliance on only these statutes fails to take into consideration 12 0.58. 2001 $ 101,³ which has remained unchanged since its enactment in 1910 and which, pursuant to 12A 0.8.2001 $ 108,⁴ supplements the UCC. Section 101 provides, in effect, that partial payment extends the time within which to bring an action in any case founded on contract. Therefore, we hold that the action was timely because it was brought within three months of the last partial payment in 2001.

FACTS

T3 The plaintiff/appellant Keota Mills and Elevator (Keota) entered into a promissory note based on an open account balance with the defendant/appellee Othel Gamble, Jr., (Gamble) on January 6, 1989. The principal sum of the loan was $100,000.00, and the interest rate was 15% per annum until paid for a total of $115,000.00. The note also included a provision for attorney fees not in excess of 15% of the unpaid debt after default. The loan was for one year, and it was secured by 300 acres of spring spinach and the 1989 soybean crops.

T4 The parties have stipulated that Gamble made sporadic payments on the note on the following dates, in the following amounts:

2/1/1990 $20,000.00 5/10/2000

3/05/1991 _ $20,000.00 6/12/2000 $2,000.00

10/18/1996 - $25,000.00 7/5/2000 $2,000.00

5/11/1999 _ $ 2,000.00 8/25/2000 $2,000.00

6/10/1999 $ 2,000.00 20/10/2000 $2,000.00

7/7/1999 $ 2,000.00 11/22/2000 _ $2,000.00

8/24/1999 _ $ 2,000.00 3/20/2001 $2,000.00

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6/13/2001 $2,000,00⁵

15 On September 28, 2001, three months after the last payment, Keota filed a lawsuit alleging that Gamble had defaulted on the note. Gamble responded with an answer and counter-claim, arguing, alternatively, that: 1) the payments did not toll the applicable statute of limitations; 2) if the limitations period had been tolled, there was an oral novation; and 3) in the absence of a novation, Keota, instead, owed Gamble.

16 On October 8, 2005, the parties stipulated that the threshold legal issue in this matter was which statute of limitations controlled-the five years under 12 0.S.1981 § 95,⁶ which was in effect when the note was executed, or the six years under 124 0.8. Supp.1992 § 3-118(a), which did not become effective until January 1, 1992.⁷

T7 The trial court held a hearing on November 17, 2005. It issued an order on January 6, 2006, determining that the action was time-barred by 12 0.S.1981 § 95.⁸ Keo-ta appealed on March 14, 2006, and the cause was assigned to this office on September 21, 2009.

18 THE PAYMENTS MADE ON THE NOTE EXTENDED THE LIMITATIONS PERIOD.

19 The parties have stipulated to the facts and issues in an apparent attempt to narrow the question before the Court. However, they also stipulated that the debtor continued to make payments on the note from 1999 until 2001. The clear implication of this stipulation is that such payments were voluntary and were to apply to the balance due on the note. 'We construe a petition in error in its entirety,⁹ and we cannot ignore applicable, controlling law.¹⁰ Rules of pleading both at trial and at appellate levels have been liberalized to allow the court to focus attention on the substantive merits of the dispute rather than upon procedural niceties.¹¹ Certainly, whether the continuation of payments serves to toll or revive the statute of limitations is within the merits of the dispute and the issues raised and argued on appeal regardless of the parties' attempt at narrowing the issue by stipulation.

110 Since 1910, the general rule of law is that voluntary, partial payments made on a contractual debt extends or revives the statute of limitations. Title 12 0.8.2001 § 101, which was enacted in 1910 and has remained unchanged since, provides:

In any case founded on contract, when any part of the principal or interest shall have been paid, or an acknowledgment of an existing liability, debt or claim, or any promise to pay the same shall have been made, an action may be brought in such case within the period prescribed for the same, after such payment, acknowledgment or promise; but such acknowledgment or promise must be in writing, signed by the party to be charged thereby.

{11 Section 101 was borrowed from the 1889 statutes of the State of Kansas. The Kansas Supreme Court in Good v. Ehrlich, 67 Kan. 94, 72 P. 545, 546 (1903) addressed its version of the statute by acknowledging that pursuant to the common law and the statute, partial payment tolled the limitations period because it was an acknowledgment of an existing liability at the time the payment was made.¹²

{12 This Court, in Berry v. Oklahoma State Bank, 1915 OK 590, 50 Okla. 484, 151 P. 210, applied the Kansas Court's rationale when it reviewed an action brought on behalf of a bank to recover on a defaulted note. The debtor alleged that the statute of limitations had expired, claiming the note was due more than five years prior to the filing of the suit. The bank had alleged that interest payments had been paid by the debtor, thereby tolling the statute of limitations. Although the Court did not specifically address the language of § 101, it did rely on the Good Kansas case which had recognized that a partial payment, if made as part of the obligation by the debtor or someone at the debt- or's direction, and under such circumstances amounted to an acknowledgment of an existing liability, extended or tolled the limitation period.¹³

13 Since 1915, this Court has had numerous opportunities to discuss and apply this statutorily codified, common law rule. In 1918, the Court recognized in Ross v. Lee, 1918 OK 222, ¶ 3, 68 Okla. 125, 172 P. 444, a case involving a promissory mortgage note, that it was well settled that when credit is made with the consent of and by agreement with the debtor, it will constitute payment and interrupt the statute of limitations. In Eichman v. Culver, 1934 OK 526, ¶ 11, 169 Okla. 495, 37 P.2d 640, the Court in an action on a promissory note held that partial payment by the debtor, in order to toll the statute of limitations must be voluntary, and made by the debtor or someone authorized on the debtor's behalf. The Court noted that the reason for this rule was because the partial payment constituted an acknowledgment of the existing debt.

114 In First State Bank of Loco v. Lucas, 1934 OK 340, ¶ 8, 168 Okla. 406, 33 P.2d 622, the Court held that in order for a partial payment to revive a debt barred by the statute of limitations, it must be made under circumstances warranting a clear inference that the debtor recognized the debt as an existing lability and indicating a willingness or at least an obligation to pay towards the balance. In other words, where the cireum-stances and events surrounding the partial payment clearly infer that the payment made was voluntary and intended to be made on the indebtedness, the limitation period is extended or revived.¹⁴

"15 This partial payment rule has also been recognized in other states as well. In Johnson v. Johnson, 81 Mo. 331 (1884), the Supreme Court of Missouri, addressing the limitation period on a suit brought to foreclose a mortgage recognized that; 1) the running of the statute of limitations is suspended and its bar overcome by evidence of partial payment; and 2) partial payment on a note, after the bar of the statute has become complete will revive the cause of action upon it. Similarly, in Wadley v. Ward, 99 Ark. 212, 137 S.W. 808, 809 (1911), the Supreme Court of Arkansas, when addressing the limitations period on a defaulted mortgage stated:

It is well settled that, as against the debt- or, partial payments made by him to his creditor will stop the running of the statute of limitations, and mark the time from which the statute then begins to run; and the general rule is that the partial payment of a debt, which will prevent the statute of limitations from running against it, will also prevent the statute from running against the remedy on the security.... ¹⁵

116 We have also recognized the partial payment rule as applied to payments made on open accounts. Pitts v. Walker, 1940 OK 387, ¶ 13, 188 Okla. 17, 105 P.2d 760, involved an open account extending over a period of eight or nine years. 'The last payment was made within three years prior to the commencement of the action. The Court recognized that by the weight of authority, the statute commences to run on each item of an open running account at the time of the entry thereof. The same rationale has been applied to other open accounts,¹⁶ payments continued on advancements on a contract for royalty interest,¹⁷ and payments made on rental agreements.¹⁸

117 The parties reliance on only 12 00.98.1981 § 95,¹⁹ or 12A 0.8. Supp.1992 $ 3-118(a),²⁰ fails to take into consideration 12 0.S.2001 $ 101, which provides that partial payment extends or revives the statute of limitations and 12A O0.$.2001 § 1-103,²¹ which states that the general statutes and case law of the state shall supplement the UCC. Although we have not discussed the statutory trifecta of 12 0.S.1981 § 95,²² 12A 0.8. Supp.1992 § 3-118(a),²³ and 12 0.5.2001 § 101, the Court of Civil Appeals has previously recognized that § 101 applies to the UCC and, because § 108 provides for general statutes to supplement the UCC, we agree.²⁴

{18 The partial payment rule, that a voluntary partial payment on a note tolls or revives the statute of limitations, has been applied for centuries.²⁵ The stipulated facts show that even if the action lapsed, regardless of whether it lapsed under a five year period or a six year period, it was revived in 1999, and every year thereafter by the debt- or's payments towards the debt.²⁶ Accordingly, we hold that the lawsuit is not time-barred because the payments made on the note for the years 1999 through 2001, which were intended to apply to the balance, extended the limitations period. The action, brought within three months of the last payment in 2001, was timely, regardless of whether the controlling statute of limitations was five years under 12 0.8.1981 § 95,²⁷ or six years under 124 O.S8. Supp.1992 § 3-118(a)²⁸ Because we reverse the trial court's ruling regarding the timeliness of the action, we also reverse the trial court's award of attorney fees to the defendant, Gamble. Consequently, we need not review the reasonableness of the trial court's enhancement bonus.

CONCLUSION

T19 When an issue or claim is properly before the court, the court is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of the governing law.²⁹ As the Court noted in the syllabus³⁰ of First Nat. Bank of Cordell v. City Guaranty Bank of Hobart et. al., 1935 OK 1105, ¶ 0, 174 Okla. 545, 51 P.2d 573:

"A stipulation between the parties or their counsel cannot control the action of the court in a matter of law, although they may stipulate respecting facts." ³¹

Under the stipulated facts, the debtor continued to make partial payments, albeit sporadically, on a note executed in 1989 for twelve years. The effect of such payments extended or revived any limitation period which would have expired had no payments additional payments been made. It would be illogical and incongruous to foreclose a ereditor from bringing an action because payments were made, then stopped, then reinstated for an extended period of time only to Tull the creditor into thinking that the debt might eventually be paid without the creditor being forced to resort to legal action. The trial court is reversed, and the cause is remanded for proceedings consistent with this opinion.

TRIAL COURT REVERSED; CAUSE REMANDED FOR PROCEEDINGS CONSISTENT WITH OUR PRONOUNCEMENT.

TAYLOR, V.C.J., HARGRAVE, OPALA, KAUGER, WINCHESTER, REIF, JJ., concur. EDMONDSON, C.J., WATT, COLBERT, JJ., dissent.

1 . Title 12 0.S8.1981 § 95 provides in pertinent part:

A. Civil actions other than for the recovery of real property can only be brought within the following periods, after the cause of action shall have accrued, and not afterwards: 1. Within five (5) years: An action upon any contract, agreement, or promise in writing;

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2 . Title 12A 0.S. Supp.1992 § 3-118(a) provides:

(a) Except as provided in subsection (e) of this section, an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six (6) years after the due date or dates stated in the note or, if a due date is accelerated, within six (6) years after the accelerated due date.

The comment to this section also provides in pertinent part:

This is a new Section, introduced as part of the 1992 UCC revisions to gain greater uniformity than was present when the statute of limitations issue was left to other local law (e.g., in Oklahoma, 12 O.S. §95 (amended 1992)). Pre-revision Section 3-122 only specified the point at which the statute of limitations began to run; that function in current Article 3 is accomplished by the specific liability sections and the agreement. See Official Comment 1 to this Section.

For the most part, the limitations period will be longer under Section 3-118: 6 years, rather than 5 years under 12 O.S. § 95 (First) (1992). See 12 0.8. § 92 (1910)...

3 . Title 12 0.$.2001 § 101 provides:

In any case founded on contract, when any part of the principal or interest shall have been paid, or an acknowledgment of an existing liability, debt or claim, or any promise to pay the same shall have been made, an action may be brought in such case within the period prescribed for the same, after such payment, acknowledgment or promise; but such acknowledgment or promise must be in writing, signed by the party to be charged thereby.

4 . Title 12A 0.$.2001 § 1-103 provided:

Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

It was enacted in 1961 and remained unchanged until 2006. The 2006 version of the statute provides:

a) The Uniform Commercial Code shall be liberally construed and applied to promote its underlying purposes and policies, which are:

(1) to simplify, clarify and modernize the law governing commercial transactions;

(2) to permit the continued expansion commercial practices through custom, usage and agreement of the parties; and

(3) to make uniform the law among the various jurisdictions.

(b) Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.

5 . Trial transcript of September 15, 2005, and accompanying exhibits 1-8 which were stipulated. Of particular interest is p. 13-14. The dissent would address only one issue-that which the parties themselves submitted to the trial court in an agreed statement of facts: whether the statutory period of limitations applicable to the claim is that of five years (12 0.S.1981 § 95) or that of six years (12 O.S. Supp.1992 § 3-118(a)). These time bars are procedural and can be tolled, even after their expiration, by restarting the statutory period's running upon the obli-gor's each voluntary payment of the obligation. 12 0.$.2001 § 101. Procedural time bars may be arrested, suspended, interrupted and erased. Reynolds v. Porter, 1988 OK 88, ¶¶ 13-21, 760 P.2d 816, 821-24; Stephens v. Household Finance Corp., 1977 OK 137, ¶¶ 15-16, 566 P.2d 1163; Hiskett v. Wells, 1959 OK 273, ¶ 0, syl.1, ¶¶ 11-15, 351 P.2d 300, 304. Black's Law Dictionary (7th ed.1999) at page 1495 defines a tolling statute as one that "interrupts the running of a statute of limitations...." A contrary view of tolling was urged before the trial court by argument that no obligor's part payment would oper-ale to breathe new life into a claim that stood expired. [Hearing on November 17, 2005, Tr. at p. 24.].

6 . Title 12 0.9.1981 § 95 see note 1, supra

7 . Title 12A 0.8. Supp.1992 § 3-118(a), see note 2, supra.

8 . Title 12 0.$.1981 § 95, see note 1, supra.

9 . Gray v. Holman, 1995 OK 118, ¶ 10, 909 P.2d 776.

10 . Title 12 0.$.2001 § 2201 provides:

A. Judicial notice shall be taken by the court of the common law, constitutions and public statutes in force in every state, territory and jurisdiction of the United States.

B. Judicial notice may be taken by the court of:

1. Private acts and resolutions of the Congress of the United States and of the Legislature of this state, and duly enacted ordinances and duly published regulations of governmental subdivisions or agencies of this state or the United States; and

2. The laws of foreign countries.

C. The determination by applicability and the tenor of any matter of common law, constitutional law or of any statute, private act, resolution, ordinance or regulation shall be a matter for the judge and not for the jury.

11 . Whitehorse v. Johnson, 2007 OK 11, ¶ 7 fn. 6, 156 P.3d 41; Davis v. GHS Health Maintenance Org., Inc., 2001 OK 3, ¶ 25 fn. 35, 22 P.3d 1204; Markwell v. Whinery's Real Estate, Inc., 1994 OK 24, ¶ 6, 869 P.2d 840.

12 . Good v. Ehrlich, 67 Kan. 94, 72 P. 545, 546 (1903) stated:

... In U.S. v. Wilder, 13 Wall. 254, 20 L.Ed. 681 [(1871)], the same point was ruled as follows (page 256, 13 Wall., 20 L.Ed. 681): ''The principle on which part payment takes a case out of the statute is that the party paying intended by it to acknowledge and admit the greater debt to be due. If it was not in the mind of the debtor to do this, then the statute, having begun to run, will not be stopped by reason of such payment." The same principle is announced in Arnold v. Downing, 11 Barb. 554, and Butler v. Price, 110 Mass,. 97. See, also, 33 Cent. Dig. § 632. Wood on Limitations (3d Ed.) § 97, lays down the rule in the following language: "In order to make a money payment a part payment within the statute, it must be shown to be a payment of a portion of an admitted debt, and paid to and accepted by the creditor as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment of more being due, from which a promise may be inferred to pay the remainder. * * * Payment * * * must be made under such circumstances as warrant a jury in finding an implied promise to pay the balance, and, if the payment was made under such circumstances as to rebut any such promise, it does not affect the operation of the statute." In section 101 it is further stated that such payment "must have been made by the debtor in person, or by some one authorized by him, to make a new promise on his behalf. And payment made by a third person, without authority from the debtor to make it, cannot remove the statute bar, because it does not imply any acknowledgment of the debt by the debtor."...

13 . Title 12 0.$.2001 § 101, see note 3, supra, originated from the Kansas statutes of 1889.

14 . See also, Hoskins v. Stevens, 1947 OK 31 1, ¶ 8, 199 Okla. 297, 185 P.2d 911, noting that "Section 101 is more than a tolling statute. It starts the statutory period to running anew." The partial payment rule has also been recognized and upheld in Street v. Moore, 1935 OK 583, ¶¶ 11-14, 172 Okla. 336, 45 P.2d 73 (promissory note); James v. Wingate, 1937 OK 127, ¶ 11, 179 Okla. 224, 65 P.2d 452 (mortgage loan); Thomas v. Puett, 1936 OK 335, ¶ 10, 177 Okla. 140, 57 P.2d 877 (action on promissory note barred where no partial payments had been made after limitation. period expired). See also, Abboud v. Abboud, 2000 OK CIV APP 116, 14 P.3d 569 (summary judgment was precluded because genuine issues of material fact existed as to whether, pursuant to § 101, the debtor made partial payments of the debt, so as to extend the statute of limitations).

15 . See also, Hewlett v. Schenck, 82 N.C. 234 (1880); Kaiser v. Idleman, 57 Or. 224, 108 P. 193 (1910).

16 . Drakos v. Edwards, 1963 OK 191, ¶ 11, 385 P.2d 459.

17 . McLaughlin v. Laffoon Oil Co., 1968 OK 69, ¶ 28, 446 P.2d 603.

18 . Harvey v. Frizzell, 1950 OK 190, ¶ 0, 203 Okla. 424, 222 P.2d 752.

19 . Title 12 0.8.1981 § 95, see note 1, supra.

20 . Title 12A 0.8. Supp.1992 § 3-118(a) see note 2, supra.

21 . Title 12A 0.8.2001 § 1-103, see note 4, supra.

22 . Title 12 0.S.1981 § 95, see note 1, supra.

²³

24 . - In Central National Bank & Trust Co. v. Stettffnisch, 1987 OK CIV APP 9, 821 P.2d 1066, the Court of Civil Appeals addressed the limitation period on a promissory note wherein partial payments had been made, the action was not brought within five years of the note, but it was brought within five years of the last partial payment. The Court, addressing the limitation period prescribed by the UCC at the time, stated in T1 6-8 that:

Under 12 0.8. § 95 a civil cause of action upon a written contract, agreement or promise must be brought within five (5) years after the cause of action shall have accrued. Under 12A 0.8.1981 § 3-122(1)(b) a cause of action accrues against a maker of a demand instrument upon its date, or, if no date is stated, on the date of issue. Applying only these two statutes to the fact that the demand note was executed on August 25, 1980 and suit was filed on December 13, 1985, one could easily conclude that the claim was barred. However, reliance only on the two above statutory sections fails to take into consideration 12 0.$.1981 § 101 which provides, in effect, that partial payment extends the time within which to bring an action in any case founded on contract, and 12A 0.$.1981 § 1-103 which provides that the general statutes and case law of the state shall supplement the Uniform Commercial Code. There is no question that partial payment on an open account either tolls or revives the statute of limitations. Drakos v. Edwards, 385 P.2d 459 (Okl.1963). See also, McLaughlin v. Laffoon Oil Company, 446 P.2d 603 (Okl.1968). The principle or theory on which part payment removes the bar of the statute is that the payment is an acknowledgment or admission of the existence of the indebtedness which raises an implied promise to pay the balance, or that the payment, by its own vigor, revives the debt, no matter how old the debt may be. The efficacy of a payment to avert the effect of the statute resides in the conscious and voluntary act of the debtor, and may be qualified and limited as a new promise may be. 54 C.J.S. § 321. This was and still is the law in Oklahoma.

25 . According to the Restatement 2d of Contracts 5 ST NT (1981), nearly two-thirds of the jurisdictions in the United States have provisions substantially similar to Oklahoma's 12 0.S.2001 § 101, see note 3, supra and they all originated from Lord Tenterden's Act, 9 Geo. IV, c. 14 also known as the Statute of Frauds Amendment Act which was enacted in England in 1828.

26 . Title 12 0.$.2001 § 101, see note 3, supra.

²⁷

²⁸

29 . Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

30 . When this Court used "syllabus," the syllabus contained the law of the case and the body of the opinion was merely dictum. Robinson v. Oklahoma Nephrology Associates, Inc., 2007 OK 2, ¶13, fn. 2, 154 P.3d 1250; Corbin v. Wilkinson, 1935 OK 977 ¶ 0 175 Okla. 247, 52 P.2d 45. The reasoning of the court in the body of the decision was an aid to the interpretation of the law expressed in the syllabus. Robinson, supra.

31 . Though parties can stipulate to certain facts, parties cannot stipulate to conclusions of law or the legal effect of stipulated facts. Longhorn Partners Pipeline, L.P. v. KM Liquids Terminals, LLC, 408 BR. 90, 95 (Bkrtcy.S.D.Tex.2009). See also Saviano v. Commissioner of Internal Revenue, 765 F.2d 643, 645 (7th Cir.1985); Rush v. Aroostook County, 447 A.2d 478, 479 (Me.1982); Hussey v. Campbell, 189 F.Supp. 54, 57-58 (S.D.Ga.1960). Parties cannot stipulate as to the law applicable to a given set of facts and bind the court. Word v. Motorola, Inc., 135 Ariz. 517, 662 P.2d 1024, 1027 (1983).