IN T H E C O U R T O F A P P E A L S O F T E N N E S S E E A T JA C K S O N J A N U A R Y 1 9 9 9 S E S S IO N ----------------------------------------------------------------------------
N A T I O N S B A N K , N .A . ( S O U T H ) , ) S h e lb y C h a n c e ry N o . 1 0 9 8 8 2 2 -3 ) P la in tiff /A p p e lle e ) A p p e al N o . 0 2 A 0 1 -9 8 0 5 -C H - 0 0 1 3 4 )
F LED I v . ) ) M IL L IN G T O N H O M E S ) I N V E S T O R S , L T D ., ) F e b ru a ry 1 9 , 1 9 9 9 ) D e fe n d a n t / A p p e ll a n t ) C e c il C r o w s o n , J r . A p p e lla te C o u r t C le r k
A P P E A L F R O M T H E C H A N C E R Y C O U R T O F S H E L B Y C O U N T Y A T M E M P H IS , T E N N E S S E E T H E H O N O R A B L E D . J. A L L IS A N D R A T O S , C H A N C E L L O R
F o r th e A p p e lla n t: R . G r a tta n B r o w n , J r ., L a rry H . M o n tg o m e ry , a n d C h a r le s W e s le y F o w le r , G L A N K L E R B R O W N , P L L C O n e C o m m e rc e S q u a re , S te . 1 7 0 0 M e m p h is , T N 3 8 1 0 3
F o r t h e A p p e lle e : P h ilip D . Irw in N E A L & H A R W E L L , P L C 2 0 0 0 F irs t U n io n T o w e r 1 5 0 F o u rth A v e n u e N o rth N a sh v ille , T N 3 7 2 1 9
A F F IR M E D
W IL L IA M H . IN M A N , S e n io r J u d g e C O N C U R :
W . F R A N K C R A W F O R D , J u d g e D A V ID R . F A R M E R , J u d g e
T h i s is a n a c t i o n to c o l l e c t 3 2 p r o m i s s o r y n o te s e x e c u te d b y th e d e f e n d a n t
in 1 9 8 5 , 1 9 8 6 , a n d 1 9 8 7 p a y a b le to U S A F a irf ie ld R e a lty F u n d , L T D . a n d a s sig n e d
to C itiz e n s F e d e r a l B a n k , N .A ., o n o rd e r, o n D e c e m b e r 2 0 , 1 9 9 1 , w ith o u t r e c o u r s e .
A p p e n d ix A i s a d i a g r a m m a t i c e x p l a n a t i o n o f t h e c o m m e r c i a l l i n e a g e o f th e
d e fe n d a n t.
T h e s e e n t itie s a re in v e s tm e n t v e h ic le s w h o s e p a r e n t c o m p a n y , U S A
P r o p e r t i e s F u n d , I n c ., 1 e x c l u s i v e l y m a n a g e d t h e b u s i n e s s a f f a i r s o f M i l l i n g t o n
H o m e s , a n a p a r t m e n t c o m p l e x lo c a t e d in t h e C i t y o f M i l l i n g t o n w h o s e g o v e r n i n g
b o d y c h a n g e d th e z o n i n g d e s i g n a ti o n f r o m r e s i d e n ti a l t o i n d u s t r i a l w h i c h , w h e n
fin a liz e d , w o u ld h a v e trig g e re d fo re c lo s u re o f th e fe d e ra l fin a n c in g m o r tg a g e s .
T h i s lo o m in g p r o b le m g a v e im p e tu s to a s a le o f th e a p a r t m e n t s t o t h e C i t y o f
M i l l i n g t o n . T h e p la in t i f f b a n k , a n a l l e g e d u n s e c u r e d c r e d it o r o f t h e d e fe n d a n t b y
v i r t u e o f it s a s s e r te d o w n e r s h i p o f t h e p r o m i s s o r y n o t e s , f i le d t h i s a c t io n t o r e c o v e r
t h e p r o c e e d s o f t h e n o te s .2 T h e d e f e n d a n t p l e a d e d (1 ) t h e b a r o f t h e S t a t u t e o f
L i m i t a t i o n s , T .C .A . § 2 8 - 3 - 1 0 9 ( c ) f o r a ll n o te s d a te d b e f o r e J a n u a r y 1 4 , 1 9 8 7 ; ( 2 )
e s t o p p e l, a l l e g i n g t h a t t h e p l a i n t i f f “ r e p r e s e n t e d t o d e fe n d a n t t h a t i t w o u l d a c c e p t
a l e s s e r a m o u n t i n s a t is f a c t i o n o f th e n o t e s ; ( 3 ) a g e n e r a l d e n i a l o f th e a l l e g a t io n s .
1 Edward Herzog is an officer and/or an agent for all but one (USA Millington Homes, Ltd.) of these commercial entities: 1. USA Fairfield; 2. Vice-President of (Defendant/Appellant) Millington Homes Investors, Ltd.; 3. Vice-President of USA Properties Fund, Inc., and authorized signatory on behalf of USA Fairfield; 4. Vice-President of Finance for (Defendant/Appellant) Millington Homes Investors, Ltd.; 5. Vice-President of USA Millington Homes, Inc.; 6. Executive Vice-President and Chief Financial Officer of USA Properties Fund, Inc. 2 Both its 75% interest, and, as agent, the remaining 25%. The total amount attached was circa $800,000.
2 T o t h e p le a d i n g o f t h e d e f e n d a n t o f e s t o p p e l, t h e p la in t i f f r e li e d u p o n th e S t a t u t e
o f F r a u d s , T .C .A . § 2 9 -2 - 1 0 1 ( b ) ( 1 ) .
T h e m o ti o n o f t h e p la in ti f f f o r s u m m a ry ju d g m e n t w a s g r a n te d u p o n a
fin d in g b y t h e C h a n c e l lo r t h a t th e a c t io n w a s ( 1 ) n o t ti m e - b a r r e d , a n d ( 2 )
n o t w i t h s t a n d in g t h a t a d is p u t e e x i s t e d a s t o w h e th e r t h e p l a i n t i f f o r a l l y a g r e e d t o
a c c e p t a le s s e r s u m t h a n w a s o w i n g o n t h e n o t e s , s u c h d i s p u t e d id n o t i n v o lv e a
m a te ria l is su e b e c a u s e th e a lle g e d p r o m is e w a s n e v e r re d u c e d to w ritin g . T h e
d e fe n d a n t a p p e a ls , a n d p r e se n ts fo r re v ie w tw o is su e s w h ic h w e re p r o d u c e in h a e c
ve rb a :
I. W h e th e r t h e t r ia l c o u r t e r r e d i n r u l in g t h a t N a t io n s B a n k ’ s a g r e e m e n t to a c c e p t a le s s e r s u m in s a tis fa c tio n o f M illin g to n H o m e s ’ lia b ility , a n d N a tio n s B a n k ’s a g re e m e n t to p u t th a t a g r e e m e n t i n w r i t i n g , a re b a r r e d b y th e S ta tu te o f F r a u d s p r o v id e d b y T .C .A . § 2 9 -2 - 1 0 1 ( b ) ( 1 ) .
II. W h e th e r t h e t r i a l c o u r t e r r e d i n r u l i n g t h a t t h e S t a t u t e o f L im ita tio n s p r o v id e d b y T .C .A . § 2 8 -3 - 1 0 9 ( c ) d id n o t b a r a n y o f N a t io n s B a n k ’ s c la i m s .3
W e s h a ll re s ta te in c o n te x t th e id e n tity a n d p o s tu re o f th e e n t it ie s w h o a r e
d ire c tly o r p e rip h e ra lly in v o lv e d in th is litig a tio n .
T h e d e f e n d a n t , M i l l i n g t o n H o m e s , i s a T e n n e s s e e l im i t e d p a r tn e r s h i p w h o s e
g e n e ra l p a rtn e r is U S A M illin g to n H o m e s L T D . U S A M illin g to n H o m e s L T D is
a T e n n e s se e lim ite d p a rtn e rs h ip w h o s e g e n e ra l p a rtn e r is U S A M illin g to n H o m e s ,
In c . U S A M i l l i n g t o n H o m e s , I n c ., i s a T e n n e s s e e c o r p o r a ti o n w h o s e s to c k i s
o w n e d b y U S A P r o p e rtie s F u n d , In c .
In 1 9 8 4 , U S A P r o p e r t i e s F u n d , I n c ., e n te r e d in t o a j o i n t v e n t u r e w i t h
E q u it a b le S e r v i c e s C o r p o r a t i o n ( “ E q u i t a b l e ” ) , a s u b s i d i a r y o f C i t i z e n s F e d e r a l
3 At the outset, we note that some arguments of the defendant, such as its insistence that the plaintiff did not own the notes when suit was filed, are not the subject of an issue presented for review. Accordingly, we will confine our discussion of the case to the issues presented.
3 S a v in g s & L o a n A s so c ia tio n , la te r k n o w n a s C itiz e n s F e d e r a l B a n k (“ C itiz e n s ” ).
T h e jo i n t v e n tu r e w a s n a m e d U S A / F a ir f i e ld R e a l t y F u n d L T D ( “ U S A F a i r f ie l d ” ) .
U S A P r o p e r tie s F u n d , In c ., w a s th e g e n e r a l p a r tn e r o f U S A F a ir f ie ld , a n d
E q u i ta b l e w a s i t s s o l e l i m i te d p a r t n e r .
O n D ecem b er 3 , 1 99 1 , U S A F a irfie ld , U S A P r o p e rtie s F u n d , In c . a n d
E q u it a b le e n t e r e d i n t o a n a g re e m e n t w h e re b y E q u it a b le w o u ld tr a n s f e r 3 .6 5 % o f
its lim ite d p a r tn e r s h ip in te r e s t in U S A F a ir f ie ld to U S A P r o p e r tie s F u n d , In c ., a n d
tra n s fe r 9 6 .3 5 % o f its lim ite d p a rtn e rs h ip in te re s t in U S A F a irf ie ld to U S A
F a i r f i e l d . P u r s u a n t t o t h i s a g r e e m e n t , U S A F a i r f i e l d a s s i g n e d t o E q u it a b le a n
u n d iv id e d 7 5 % in te re s t in a n d to th e p ro c e e d s o f 3 2 p ro m is s o r y n o te s m a d e b y
M i l l i n g t o n H o m e s (th e “ N o t e s ” , w h i c h , a s o f O c to b e r 3 0 , 1 9 9 1 , h a d a n a g g re g a te
p r i n c ip a l b a la n c e o f O n e M illio n F o rty T h o u s an d D o lla rs $ $ 1 ,0 4 0 ,0 0 0 .) .
U S A /F a ir f ie ld w a s to re ta in th e re m a in in g 2 5 % in te r e s t in th e N o te s .
T h e a g r e e m e n t a ls o p r o v i d e d th a t:
T h e a s s ig n m e n t o f th e M illin g to n N o te s s h a ll b e e ff e c tu a te d b y F a i r f ie l d ’ s d e liv e ry o f th e M illin g to n N o te s to C itiz e n s F e d e r a l B a n k a s A g e n t p u rs u a n t to a n A g e n c y A g re e m e n t . . . w h ic h s h a ll b e e x e c u te d b y F a ir f i e ld a n d E q u it a b le .
U S A F a i r f ie l d e n d o r s e d e a c h o f th e N o t e s a s s ig n in g “ . . . a l l o f i t s r i g h t , t i t l e ,
a n d in te re s t in a n d to th e w ith in in s tru m e n t, w ith o u t re c o u rs e , to C itiz e n s F e d e r a l
B a n k .” U S A F a irf ie ld th e n d e liv e re d th e N o te s to C itiz e n s w h ic h h e ld th e m a s
A g e n t f o r F a ir f i e ld a n d E q u it a b le a s o w n e rs o f 2 5 % a n d 7 5 % in te re s t s in th e N o te s ,
re s p e c tiv e ly .
O n A p r il 9 , 1 9 9 6 , M illlin g to n H o m e s c o n tra c te d to s e ll th e a p a rtm e n ts in
M illin g to n , T e n n e s s e e , to t h e C ity o f M ill in g to n , T e n n e s s e e . T h e S a le s A g r e e m e n t
r e q u i r e d t h e s e l le r t o n o t if y t h e b u y e r o n o r b e fo r e J u n e 2 4 , 1 9 9 6 , w h e th e r it h a d
o b t a in e d t h e “ S e l le r ’ s A p p r o v a ls ,” w h i c h re q u ir e d th e a p p r o v a ls o f t h e M i l l i n g t o n
4 H o m e s p a r tn e r s a n d s u c h c r e d ito r s o f t h e s e l le r , a s i n s e l le r ’ s ju d g m e n t, it d e e m e d
n e c e s s a ry .
P a r a g r a p h 3 .2 o f th e S a le s A g re e m e n t p ro v id e d in p e rtin e n t p a rt a s fo llo w s :
E s c r o w C l o s i n g P e r i o d . T h e E s c r o w C l o s i n g s h a ll o c c u r o n o r b e fo r e th e e x p ira tio n o f th irty (3 0 ) d a y s fo llo w in g th e l a t e r o f n o t ic e f r o m B u y e r to S e lle r o f th e fu lfillm e n t o f B u y e r’s C o n tin g e n c y E v e n ts (a s d e fin e d b e lo w ) , a n d n o tic e f r o m S e lle r to B u y e r o f th e fu lfillm e n t o f S e l le r ’ s C o n t i n g e n c y E v e n ts ( a s d e fi n e d b e l o w ) , b u t in n o e v e n t s h a l l t h e E s c ro w C lo s i n g o c c u r la te r th a n A u g u s t 1 , 1 9 9 6 ( th e “ E s c ro w C lo s in g P e rio d ” ). N o tic e o f fu lfillm e n t o f B u y e r’ s C o n tin g e n c y E v e n ts s h a ll b e g iv e n b y B u y e r t o S e ll e r o n o r b e fo r e J u n e 2 4 , 1 9 9 6 , ( “ B u y e r ’ s N o t ic e D a te ” ) , a n d n o tic e o f fu lfillm e n t o f S e l le r ’ s C o n tin g e n c y E v e n t s s h a ll b e g iv e n b y S e l le r to B u y e r o n o r b e f o r e J u n e 2 4 , 1 9 9 6 , ( “ S e l le r ’ s N o t ic e D a t e ” ) . B u y e r’ s fa ilu re to g iv e s u c h n o tic e o n o r b e fo r e B u y e r’s N o tic e D a te s h a ll b e d e e m e d B u y e r’s a c c e p ta n c e th a t B u y e r’s C o n tin g e n c y E v e n ts h a v e b e e n fu lfille d o r w a iv e d , a n d S e l le r ’ s fa ilu re to g iv e s u c h n o t ic e o n o r b e f o r e S e l le r ’ s N o tic e D a te s h a ll b e d e e m e d S e lle r’s a c c e p ta n c e th a t S e lle r’s C o n tin g e n c y E v e n t s h a v e b e e n f u lf ille d o r w a iv e d .
P a r a g r a p h 4 .2 .2 .1 o f t h e S a l e s A g r e e m e n t p r o v i d e d in p e rt i n e n t p a rt a s
fo llo w s :
S e l le r ’ s A p p r o v a ls . T h e s a l e o f th e R e a l P r o p e r t y t o B u y e r i s c o n t in g e n t u p o n S e lle rs o b ta in in g a p p r o v a l o f s u c h s a le b y ( a ) th e p a r t n e r s o f S e l l e r a n d th e p a r t n e r s o f t h e g e n e r a l p a r t n e r o f S e l le r a s r e q u ir e d b y t h e a p p l i c a b l e l im i te d p a r t n e r s h i p a g r e e m e n t ( s ) , a n d (b ) s u c h c r e d ito r s o f S e l le r a s in S e lle r ’s ju d g m e n t m a y b e n e c e s s a r y , ( “ S e l le r ’ s A p p r o v a l” ) , a n d S e l le r ’ s d e l iv e r y o f w r i t t e n c o n f i r m a t i o n o f S e l le r ’ s A p p r o v a l s to B u y e r . S e l l e r s h a l l c o m m e n c e i t s e f f o r t s t o o b ta in s u c h a p p r o v a l s a s s o o n a s p r a c tic a b l e a f t e r e x e c u t i o n o f t h i s A g r e e m e n t b y B u y e r a n d S e lle r. S e lle r s h a ll d ilig e n tly p u rs u e th e s e c u r i n g o f s u c h a p p r o v a ls , a n d s h a ll p r o m p t l y n o ti f y B u y e r o f t h e o b ta in in g o f S e l le r ’ s A p p r o v a l s o r o f a n y f a c t o r o c c u r r e n c e w i t h re s p e c t to a fa ilu re o f S e lle r to o b ta in S e lle r’s A p p ro v a ls a s s o o n a s p ra c tic a b le a fte r d is c o v e ry th e re o f, b u t in a n y e v e n t, n o t la te r th a n S e lle r’ s N o tic e D a te .
B y le tte r d a te d A p ril 1 9 , 1 9 9 6 , H e rz o g in f o r m e d C h ris tin e M o ss, a
N a tio n s B a n k V ic e -P re s id e n t in T a m p a , F lo rid a , o f M illin g to n H o m e s ’ p ro p o s e d
s a le o f th e a p a r tm e n t s a n d s e n t h e r a c o p y o f th e S a le s A g r e e m e n t w h i c h i m p o s e d
a d e a d li n e o f J u n e 2 4 , 1 9 9 6 . W h e th e r H e rz o g , f o r t h e d e fe n d a n t, a n d M o s s , f o r th e
5 p l a i n t if f , o r a l l y a g r e e d to a r e d u c t io n o f th e a m o u n t o w i n g o n th e N o t e s , is
d is p u te d ; lik e w is e , w h e t h e r M o s s a g r e e d t o r e d u c e t h e p u r p o r te d o r a l a g r e e m e n t
to w ritin g is d is p u te d . If a re s o lu tio n o f th is n a rr o w is s u e w a s re le v a n t a n d
m a te ria l to a d is p o s iti o n o f t h e c a s e , i t i s c l e a r t h a t th e m o t io n f o r s u m m a r y
ju d g m e n t w a s i m p r o v i d e n tl y g r a n te d . S e e , B y r d v . H a ll, 8 4 7 S . W .2 d 2 0 8 ( T e n n .
1 9 9 3 ) ; R u le 5 6 , T . R . C . P .
Our review of the findings of fact made by the trial Court is de novo upon
the record of the trial Court, accompanied by a presumption of the correctness of
the finding, unless the preponderance of the evidence is otherwise. TENN. R. APP.
P., RULE 13(d); Campbell v. Florida Steel Corp., 919 S.W.2d 26 (Tenn. 1996).
Where there is no conflict in the evidence as to any material fact, the question on
appeal is one of law, and the scope of review is de novo with no presumption of
correctness accompanying a chancellor's conclusions of law. Union Carbide Corp.
v. Huddleston, 854 S.W.2d 87 (Tenn. 1993). F o r t h e p u r p o s e s o f t h i s o p i n i o n , a n d
n o o th e r , w e a s s u m e , a s d id th e C h a n c e llo r, th a t th e p la in tiff o ra lly a g re e d to
c o m p ro m is e th e d e b t a n d to a c c e p t a l e s s e r s u m [ 3 2 % ] th a n w a s o w in g o n th e
a g g re g a te d N o te s , a n d th a t s u c h a g re e m e n t w a s n e v e r re d u c e d to w ritin g .
T h e d e f e n d a n t a g r e e s th a t th e o ra l a g r e e m e n t w a s n e v e r re d u c e d to w ritin g ,
d e s p i te , a s w e re a d th e r e c o rd , its re p e a t e d a n d u n a v a ilin g e ffo rts to p e rs u a d e th e
p l a i n t if f to d o s o . I n l i g h t o f t h e la n g u a g e o f T .C .A . § 2 9 - 2 - 1 0 1 ( b ) ( 1 ) ,4 t h e
4 The statute provides as follows: No action shall be brought against a lender or creditor upon any promise or commitment to lend money or to extend credit, or upon any promise or commitment to alter, amend, renew, extend or otherwise modify or supplement any write promise, agreement or commitment to lend money or extent credit, unless the promise or agreement, upon which such action shall be brought, or some memorandum or note thereof, shall be in writing and signed by the lender or creditor, or some other person by him thereunto lawfully authorized.
6 d e f e n d a n t s e e k s t o a v o id t h e a p p l i c a t i o n o f t h e S ta tu t e o f F r a u d s u p o n th e th e o ri e s
o f p r o m i s s o r y a n d e q u i t a b le e s t o p p e l.
P r o m is s o r y e s to p p e l is d e f in e d in A m a c h e r v . B r o w n - F o r e m a n C o r p o r a tio n ,
8 2 6 S .W .2 d 4 8 0 (T e n n . A p p . 1 9 9 1 ). It is
“ [A ] p ro m is e w h i c h th e p ro m is o r s h o u l d r e a s o n a b ly e x p e c t to in d u c e a c tio n o r fo rb e a ra n c e o n th e p a rt o f th e p ro m is e e o r a th i r d p e rs o n a n d w h ic h d o e s in d u c e su c h a c ti o n o r f o r b e a r a n c e is b in d in g if in ju s tic e c a n b e a v o id e d o n ly b y en fo rc em e n t o f th e p ro m is e . . .”
A m a c h e r w a s n o t c o n c e rn e d w i t h t h e is s u e o f t h e S ta tu t e o f F r a u d s , b u t w e
re fe r to it fo r d e fin itio n a l p u rp o s e s . W e a re n o t a w a re o f a n y d e c is io n a l la w o f th is
S t a t e w h i c h a d d r e s s e s t h e p r e c i s e i s s u e ; to t h e c o n t r a r y , t h e t h r u s t o f th e c a s e s i s
t h a t p r o m is s o r y e s to p p e l is n o t r e c o g n iz e d a s a n e x c e p tio n to th e S ta tu te o f F r a u d s .
S e e , e .g ., S .I.B .C . v . F o r d M tr . C r e d it C o ., 9 1 1 S .W .2 d 7 2 0 (T e n n . A p p . 1 9 9 5 ).
E q u i t a b l e e s to p p e l , a d i s tin c t a n d d i s p a r a te d o c tr in e , is re c o g n i z e d i n
T e n n e s s e e a s a n e x c e p tio n to th e S ta tu te o f F r a u d s . S e e , e . g . , B a l i l e s v . C i t i e s S e r v .
C o ., 5 7 8 S . W .2 d 6 2 1 , 6 2 4 ( T e n n . 1 9 7 9 ) . C a s e s i n w h i c h it i s r e c o g n iz e d a r e t h o s e
“ w h e r e to e n f o r c e th e S ta tu t e o f F r a u d s w o u ld m a k e it a n in s tr u m e n t o f h a rd s h ip
a n d o p p r e s s i o n , v e r g i n g o n a c t u a l f r a u d .” I d . T h e e l e m e n t s o f e q u i t a b l e e s to p p e l
a re :
(1 ) C o n d u c t w h ic h a m o u n t s to a f a ls e re p r e se n ta tio n or c o n c e a lm e n t o f m a te ria l fa c ts , o r, a t le a s t, w h ic h is c a lc u la te d to c o n v e y t h e i m p r e s s io n th a t th e f a c ts a re o th e rw is e th a n , a n d in c o n sis te n t w ith , th o s e w h ic h th e p a r ty s u b s e q u e n tly a t te m p t s to a s s e rt;
(2 ) In te n tio n , o r a t le a s t e x p e c ta tio n th a t s u c h c o n d u c t s h a ll b e a c te d u p o n b y th e o th e r p a rty ;
(3 ) K n o w l e d g e , a c t u a l o r c o n s tr u c t i v e o f th e r e a l f a c t s .
A s r e l a t e d t o t h e p a r t y c l a i m i n g t h e e s t o p p e l th e y a r e :
(1 ) L a c k o f k n o w le d g e a n d o f th e m e a n s o f k n o w le d g e o f th e tru th a s to th e fa c ts in q u e s tio n ;
7 (2 ) R e lia n c e u p o n th e c o n d u c t o f th e p a r ty e s to p p e d ; a n d
(3 ) A c t i o n b a s e d th e re o n o f s u c h a c h a r a c t e r a s to c h a n g e h is p o s itio n p re ju d ic ia lly .
T h e a lle g e d o ra l a g re e m e n t b y th e p la in tiff to re d u c e th e o ra l a g re e m e n t to
w r i t i n g d o e s n o t e s t o p t h e p l a i n t if f f r o m i ts r e l i a n c e o n th e S ta tu te o f F r a u d s . I n
P a t t e r s o n v . D a v i s , 1 9 2 S . W .2 d 2 2 7 ( T e n n . 1 9 4 6 ) , t h e C o u r t r e fu s e d to a ll o w a n
a g r e e m e n t to r e d u c e a c o n t ra c t to w ritin g to ta k e th e u n d e rly in g c o n tra c t o u t o f th e
S ta tu te , h o ld in g th a t “ [S ] u c h a n a g re e m e n t , if w e a s su m e it to h a v e b e e n m a d e ,
a v a i l s n o t h i n g , f o r a p a r o l c o n tr a c t , u n e n fo r c e a b le u n d e r t h e S ta tu t e , i s n o t m a d e
b in d in g b y a fu r th e r p a r o l a g r e e m e n t to re d u c e it t o w r iti n g .”
I n s h o r t , w e fi n d n o e v i d e n c e o f o v e rr e a c h in g o r f r a u d in t h i s r e c o r d . A n d
w e a g r e e w i t h t h e C h a n c e l l o r t h a t t h e r e i s n o e v id e n c e o f th e d e f e n d a n t’ s r e lia n c e
u p o n t h e a l le g e d o r a l p r o m i s e t o r e d u c e th e d e b t, w h ic h w o u ld h a v e b e e n a s im p le
m a t te r , if n o th in g e ls e , o f a c r e d ito r ’s g r a c e . T h e d e f e n d a n t a rg u e s , in te r a lia , th a t
i t o b t a in e d th e l i m i t e d p a r t n e r s ’ a p p r o v a l o f t h e s a l e o f t h e a p a r t m e n t s t o t h e C i t y
o f M illin g to n b a s e d u p o n its re p re s e n ta tio n t o t h e m t h a t th e p l a i n t if f w o u l d r e d u c e
its d e b t [ w h ic h w o u ld r e s u lt in a g r e a t e r p a y m e n t to t h e l im i te d p a r t n e r s ] . B u t th e
r e c o r d r e v e a ls th a t th e d e f e n d a n t s o u g h t s u c h a p p r o v a l m a n y w e e k s b e fo r e th e o ra l
s ta t e m e n t s w e r e m a d e . M o r e o v e r , t h e r e c o r d i s c le a r o n t h e p o in t t h a t t h e re z o n i n g
w o u ld r e s u l t i n a f o r e c l o s u r e o f t h e f e d e r a l m o r t g a g e s , th e re b y “ w i p in g o u t” th e
l im i te d p a r t n e r s .
S u m m a ry ju d g m e n t c a n n o t b e g ra n te d if t h e re is a g e n u i n e d is p u t e a s t o a
m a te ria l fa c t. R u le 5 6 , T .R .C .P ., B y r d v . H a ll, s u p r a . In m a k in g a d e te rm in a tio n
o f w h e th e r a g e n u i n e i s s u e o f m a t e r i a l f a c t e x i s t s , th e C o u r t m u s t t a k e t h e s t r o n g e s t
le g itim a te v ie w o f t h e e v id e n c e in f a v o r o f th e n o n - m o v in g p a rt y , a ll o w a ll
re a s o n a b le in fe re n c e s in fa v o r o f th a t p a rty a n d d is c a rd a ll c o u n te rv a ilin g e v id e n c e .
8 I f th e re is a d i s p u t e a s to a n y m a te r ia l f a c t o r d o u b t a s to c o n c lu s io n s to b e d r a w n
fro m th a t fa c t, o r u n c e rta in ty a s to w h e th e r m a te ria l fa c ts a re in d is p u te , s u m m a ry
ju d g m e n t m u s t b e d e n ie d . Id .
A s s t a t e d , w h e t h e r th e p l a i n t if f o r a ll y a g r e e d t o a c c e p t a l e s s e r s u m [ 3 2 % ]
i n p a y m e n t o f th e d e b t, a n d a g r e e d to r e d u c e th e o ra l a g r e e m e n t t o w r i t i n g , i s
d is p u te d . T h e s e a r e th e o n l y f a c tu a l d is p u te s th a t th e d e f e n d a n t id e n tif ie s . T h e
is s u e th e n b e c o m e s w h e t h e r s u c h d is p u te s a re m a te ria l. W e a g re e w ith th e
C h a n c e llo r th a t n e ith e r is m a te ria l a n d n e ith e r c re a te d a g e n u in e is s u e fo r tr ia l.
C o n c lu s i v e p r o o f t h a t th e p l a i n t if f a g r e e d a s a ll e g e d w o u l d a v a i l t h e d e f e n d a n t s
n o t h i n g i n l i g h t o f t h e p la in l a n g u a g e o f t h e S ta tu t e . P a t t e r s o n v . D a v i s , s u p r a .
T h e is s u e o f th e S ta tu te o f L im ita tio n s is a m o r e d if f ic u lt o n e . T .C .A . § 2 8 -
3 -1 0 9 (c ) p ro v id e s th a t th e c a u s e o f a c tio n o n d e m a n d n o te s sh a ll b e c o m m e n c e d
w it h in te n ( 1 0 ) y e a r s a fte r th e c a u s e o f a c tio n is a c c ru e d . A c a u s e o f a c tio n o n a
d e m a n d n o te , b y s ta tu t e , a c c r u e s a t th e t im e o f th e m a k i n g o f th e n o te . T .C .A . §
2 8 -1 -1 0 2 .
T w e n ty -s ix o f t h e t h i r ty - t w o n o t e s w e r e m a d e m o r e th a n te n y e a r s b e f o r e
J a n u a r y 1 4 , 1 9 9 7 , th e d a t e th e c o m p la in t w a s f i l e d . N o th in g m o r e a p p e a r i n g , s u c h
a s a n a g r e e d e x t e n s i o n , r e n e w a l s , o r a p a r t i a l p a y m e n t , t w e n t y s i x o f t h e n o te s a r e
t im e - b a r r e d .
T h e C h a n c e l l o r ru l e d t h a t a n a g r e e m e n t b e t w e e n U S A / F a i r f i e l d , E q u it a b le ,
a n d C itiz e n s to lle d th e S ta tu te . T h is a g re e m e n t w a s e n te re d in to o n D e c e m b e r 2 0 ,
1 9 9 1 “ b y a n d a m o n g U S A /F a irf ie ld R e a lty F u n d , L T D , (F a irf ie ld ) a C a lifo rn ia
l i m i t e d p a rt n e rs h ip , E q u it a b le S e r v ic e s C o r p o r a ti o n , a n d C i t i z e n s F e d e r a l B a n k ,
( a g e n t ) .”
9 B y th is A g re e m e n t, F a irf ie ld (1 ) d e liv e re d to C itiz e n s F e d e r a l B a n k th e
o rig in a l n o te s e x e c u te d b y M illin g to n H o m e s In v e s to rs , L T D .; (2 ) r e ta in e d a 2 5 %
i n t e r e s t in th e N o te s , a n d (3 ) E q u it a b le r e c e i v e d a 7 5 % in t e r e s t . I t w a s a g r e e d t h a t
C i t i z e n s F e d e r a l B a n k w o u l d h o l d t h e n o te s a s a g e n t f o r F a i r f i e l d a n d E q u i t a b le .
T h e A g re e m e n t p ro v id e d :
3 . D e m a n d fo r p a y m e n t o f n o te s. “ N o tw ith s ta n d in g th e s ta tu s o f th e M illin g to n N o te s a s d e m a n d n o te s , A g e n t s h a ll n o t m a k e d e m a n d fo r p a y m e n t th e re o f p rio r to A u g u st 1 , 1 9 9 7 u n le s s o n e o f th e fo llo w in g e v e n ts o c c u rs , in w h ic h c a s e A g e n t s h a ll m a k e d e m a n d fo r p a y m e n t:” (a )(b )(c )
O f t h e c o n t in g e n c i e s m a t e r i a l h e r e , t h e f i r s t to o c c u r w a s th e s a le b y th e
d e fe n d a n t o f a n o t h e r a s s e t r e f e r r e d t o a s F la g M a n o r A p a r tm e n t s in D e c e m b e r ,
1 9 9 5 , w h i c h tr i g g e re d th e p la in t i f f ’ s r i g h t t o d e m a n d p a y m e n t.
T h e d e f e n d a n t a rg u e s t h a t t h i s A g e n c y A g r e e m e n t, h e ld b y th e C h a n c e ll o r
to h a v e to lle d th e S ta tu te o f L im ita tio n s , is n o t b in d in g o n th e d e f e n d a n t b e c a u s e
i t w a s n o t a p a r ty t h e r e t o a n d th a t c r e d it o r s c a n n o t a g re e w i t h o u t t h e c o n s e n t o f t h e
d e b to r to im p a ir a d e b to r’ s a b ility to in v o k e th e S ta tu te o f L im ita tio n s .
C o u n te rin g t h i s a r g u m e n t , t h e p l a i n t if f i n s i s t s t h a t th e d e f e n d a n t is a lim ite d
p a rtn e r s h ip w h o s e s o le g e n e ra l p a rtn e r, U S A M illin g to n H o m e s , L T D , is a ls o a
lim ite d p a r tn e r s h ip . U S A F a irf ie ld R e a lty L T D is th e s o l e lim ite d p a r tn e r o f U S A
M illin g to n H o m e s , L T D , a n d is a C a lif o r n ia lim ite d p a r tn e r s h ip . U S A F a i r f ie l d ’ s
s o le g e n e ra l p a rtn e r is U S A P r o p e r t i e s F u n d , I n c ., w h i c h is t h e d e f e n d a n t ’ s
m a n a g in g a g e n t. T h e M illin g to n n o te s a t is su e in th is c a se , a n d th e A g e n c y
A g r e e m e n t, w e re e x e c u te d b y U S A F a irf ie ld R e a lty L T D , th e s o le lim ite d p a rtn e r
o f th e g e n e ra l p a rtn e r o f th e d e fe n d a n t. E d w a rd H e rz o g w a s a n o ff ic e r f o r b o th th e
10 d e fe n d a n t a n d U S A P r o p e rtie s, w h ic h w a s th e p a re n t c o m p a n y o f th e d e fe n d a n t
a n d , a s sta te d , th e m a n a g in g a g e n t.
G iv e n th e s e c ir c u m s ta n c e s , w e r e je c t th e a r g u m e n t o f th e d e f e n d a n t -
a p p e l l a n t t h a t t h e A g e n c y A g r e e m e n t w a s n o t b i n d i n g o n it . T h e in c o n g ru i t y o f t h e
d e fe n d a n t ’ s a r g u m e n t a p p e a r s in v a r io u s a s p e c t s , n o t t h e l e a s t o f w h i c h i s i t s
i n s i s te n c e t h a t i t s p a r e n t c o m p a n y a n d m a n a g i n g a g e n t , U S A P r o p e r t i e s F u n d , I n c .,
h a d n o a u t h o r i t y to b in d it b y th e A g e n c y A g r e e m e n t, o n t h e o n e h a n d , b u t th a t
U S A P r o p e r t i e s F u n d , I n c ., h a d th e a u t h o r i t y t o b i n d t h e p la in t i f f t o a n o r a l
a g r e e m e n t o n it s b e h a l f , o n th e o th e r. M o r e o v e r , t h e d e f e n d a n t ’ s a u d it e d fi n a n c i a l
s ta t e m e n t s f r o m 1 9 9 1 to 1 9 9 6 d e s c ri b e th e M i l l i n g t o n n o t e s a s “ a d v a n c e s f ro m
a f f i l i a t e ” a n d e m p h a s iz e t h a t n o d e m a n d c a n b e m a d e o n t h e n o te s b e fo r e A u g u s t
1 , 1 9 9 7 e x c e p t u p o n s a le o r r e fin a n c in g o f th e p r o p e r ty .
W e a g r e e w i t h t h e C h a n c e ll o r t h a t t h e 1 9 9 1 A g r e e m e n t c h a n g e d th e d a t e o f
th e c o m m e n c e m e n t o f th e ru n n in g o f th e S ta tu te , a n d th a t th e c o m p la in t w a s tim e ly
file d .
T h e C h a n c e ll o r f u r t h e r r e s p o n d e d t o t h e is s u e o f t h e S ta tu t e o f L i m i t a t i o n s
b y h o l d i n g t h a t t h e p a r t i e s a g r e e d b y a “ p a t t e r n o f c o n d u c t t o m o d i f y th e n o te s i n t o
a s in g le in d e b t e d n e s s ” w h i c h w a s a c k n o w le d g e d b y a p a y m e n t b y th e d e f e n d a n t
i n D e c e m b e r 1 9 9 5 w h ic h re c o m m e n c e d t h e r u n n in g o f th e S ta tu te . T h e re c o r d
i n d i c a t e s t h a t b e f o r e t h e c o m p l a i n t w a s f i l e d th e d e f e n d a n t c o n s i d e r e d th e n o te s t o
b e o n e d e b t, i . e ., a n a g g r e g a t e d d e b t w i t h a c o m m o n i n t e r e s t n o t e a n d c o m m o n d a te
o f m a tu r ity . P a y m e n t s w e r e a lw a y s m a d e “ o n th e d e b t,” o r o n “ th e M illin g to n
N o t e s . ” M r . H e r z o g s o t e s t i f i e d . A h o s t o f d o c u m e n ts t r e a t t h e n o te s a s o n e d e b t;
in a M a y 2 2 , 1 9 9 6 le tte r to i ts lim ite d p a r tn e r s , th e d e f e n d a n t r e f e r e n c e s th e d e b t
a s th e “ N a tio n s B a n k ( u n s e c u r e d n o t e ) ” .
11 A p a r t i a l p a y m e n t o f a d e b t i s a n a c k n o w le d g m e n t o f th e d e b t a n d ra is e s a n
i m p l i e d p r o m i s e to p a y th e b a l a n c e o w i n g . S e e , G r a v e s v . S a w y e r , 5 8 8 S . W .2 d 5 4 2
( T e n n . 1 9 7 9 ); F a r m e r s & M e r c h a n ts B a n k v . T e m p l e to n , 6 4 6 S .W .2 d 9 2 0 (T e n n .
A p p . 1 9 8 2 ) . I n t h e c i r c u m s ta n c e s o f th i s b u s i n e s s m a t t e r w e t h i n k t h e h o ld e r o f t h e
n o te s w a s fre e to c r e d it th e m a s it c h o s e . W e a g re e w ith th e C h a n c e llo r th a t th e
v o l u n t a ry p a y m e n t i n 1 9 9 5 r e c o m m e n c e d th e ru n n in g o f t h e S ta tu t e .
F o r t h e r e a s o n s d i s c u s s e d , t h e j u d g m e n t i s a f f i r m e d a t th e c o s t s o f th e
a p p e l la n t a n d th e c a s e is r e m a n d e d f o r a l l a p p r o p r ia t e p u r p o s e s .
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ W illia m H . In m a n , S e n io r J u d g e C O N C U R :
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ W . F ra n k C ra w fo rd , Ju d g e
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ D a v id R . F a r m e r, J u d g e