C.A. Hobbs, Jr., Inc. v. David Brainard, Susan B. Reyes, and Carol B. Ham

C.A. HOBBS, JR., INC, )
)
Plaintiff/Appellee, ) Appeal No.
) 01-A-01-9506-CV-00236
v. )
) Montgomery Circuit
DAVID BRAINARD, ) No. C9-772
SUSAN B. REYES and )
CAROL B. HAM, )
Defendants/Appellants.
)
)
FILED
Nov. 3, 1995
Cecil Crowson, Jr.
COURT OF APPEALS OF TENNESSEE Appellate Court Clerk
MIDDLE SECTION AT NASHVILLE
APPEAL FROM THE CIRCUIT COURT FOR MONTGOMERY COUNTY
AT CLARKSVILLE, TENNESSEE
THE HONORABLE JAMES E. WALTON, JUDGE
ROBERT H. MOYER
Rudolph, Ross & Fendley
107 North Third Street
P. O. Box 925
Clarksville, Tennessee 37041-0925
ATTORNEY FOR PLAINTIFF/APPELLEE
V. MICHAEL FOX
Bruce, Weathers, Corley Dughmand & Lyle
First American Center, 20th Floor
315 Deadrick Street
Nashville, Tennessee 37238-2075
ATTORNEY FOR DEFENDANTS/APPELLANTS
REVERSED AND REMANDED
SAMUEL L. LEWIS, JUDGE
O P I N I O N
This is an appeal by defendants/appellants from the trial
court's order granting plaintiff/appellee's motion for summary
judgment and the resulting judgment entered in favor of
plaintiff/appellee, C.A. Hobbs, Jr., Inc. ("Hobbs").
The facts out of which this matter arose are as follows.
On or about 9 February 1981, Dr. Clara Brainard Wagner, appellants'
mother, executed a promissory note in the principal sum of forty-
three thousand seven hundred ninety-one dollars ($43,791.00). The
note accrued interest at seven percent and was payable on demand to
the order of Hobbs.
On or about 26 March 1984, appellants entered into a
contract with Hobbs in which they assumed the indebtedness of the
promissory note. The pertinent portion of the agreement provides
as follows:
Brainard, Reyes and Ham will unconditionally assume
the indebtedness evidenced by a promissory note in
the amount of $43,791.00, dated February 9, 1981
plus accrued interest from February 9, 1981 made by
their mother, Clara Brainard, to C.A. Hobbs, Jr.,
Inc., with the understanding that they will pay
this indebtedness from the first proceeds received
from the syndication of a 48 unit apartment complex
in Pembroke, Kentucky which is anticipated to be
syndicated in March of 1984. Unavailability of
funds from the syndication of the Pembroke,
Kentucky property or inability to syndicate said
property shall not relieve them from liability on
said note; however Hobbs will not demand payment of
said note within a period of 1 year from date
hereof or the settlement of the Estate of Clara
Brainard, whichever shall first occur. After
demand, Brainard, Reyes and Ham waive protest and
dishonor and agree to pay a reasonable attorney fee
if said note is placed in the hands of an attorney
for collection.
It is without question that the promissory note at issue is
a demand note. Tennessee law requires a party to bring an action
to collect on a demand note within ten years of the date of
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execution. Jenkins v. DeWar, 112 Tenn. 684, 685-86, 82 S.W. 470,
470 (1904); Tenn. Code Ann. § 28-3-109(c)(1980). In this case, the
statute ran on 9 February 1991, ten years after the execution of
the note on 9 February 1981.
In Hall v. Skidmore, 171 S.W.2d 274, 275 (Tenn. 1943), the
Tennessee Supreme Court set forth the rule that an acknowledgment
of a debt does not toll the statute of limitations unless:
[It is] "coupled with an expression of a willing-
ness to pay." Such an expression might be implied
from words or acts of the debtor, but, in whatever
form it is to be found, it must amount to the
recognition of a continuing obligation. In other
words, the acknowledgment of the debt will be
construed as a "willingness to pay" when the facts
and circumstances surrounding the parties indicate
an intention on the part of the debtor to
revitalize the original promise. . . .
Hall, 171 S.W.2d at 275 (citing 34 Am. Jur., P. 235 and cases
cited). In 1979, the Tennessee Supreme Court addressed the issue
presented in Hall once again. Graves v. Sawyer, 588 S.W.2d 542
(Tenn. 1979). As in Hall, the court had to decide whether payments
of interest on a promissory note tolled the statue of limitations.
Id. The Hall court applied the rule quoted above and concluded
that payments of principal and interest alone did not constitute a
willingness to pay. Hall, 171 S.W.2d at 275-76. In Graves, the
court restated the rule in Hall, but then criticized it for being
"entirely too harsh." Graves, 588 S.W.2d at 544. As a result, the
court held that, absent evidence to contrary, "the affirmative act
of a debtor in making a voluntary, unconditional payment on a debt,
or interest due on a debt, is such an act that implies 'a
willingness to pay.'" Note, however, that the Graves court did not
overturn the rule set forth in Hall. Instead, the Graves court
overruled the conclusion reached by the Hall court. See Id. Thus,
it still remains the law of this state that the maker of a note or
his agent must acknowledge the existence of the debt and express
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a willingness to pay the debt in order to toll the statute of
limitations. See Spearman v. Stucki, 1986 WL 6315, at *2 (Tenn.
App. 1986); Farmers & Merchants Bank v. Templeton, 646 S.W.2d 920,
923 (Tenn. App. 1982).
In the instant case, Dr. Wagner executed the promissory note
on 9 February 1981. There was a subsequent promise to pay the 1981
debt, but it was not made by the original maker of the note or the
maker's agent. Under the contract, the appellants assumed the
obligations contained in the 1981 note. The contract was not an
acknowledgement of appellants' existing indebtedness. Rather, it
was an assumption of the indebtedness of another by appellants.
The statute of limitations "confers a positive right."
Stanley v. McKinzer, 75 Tenn. 454, 457 (1881). When appellants
assumed the obligation to pay the promissory note, they also
assumed the positive right conferred by the statute of limitations
on the original note.
Had appellants executed a new note, the outcome would be
different.
It is the law in Tennessee that execution of a new
note acknowledging existing indebtedness waives the
limitations period with respect to that indebted-
ness, so that a new limitations period begins to
run from the time of the renewed note.
Union Planters Nat'l Bank v. Markowitz, 468 F. Supp. 529, 532 (W.D.
Tenn. 1979). Only a maker of a note can remove an already existing
note from the statute of limitations by expressing a willingness to
pay without the execution of a new note.
Had the parties intended the statute of limitations to
recommence in 1984, when they entered into the contract, they could
have executed a new note to replace or renew the original note.
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Appellants did not execute a new promissory note for the debt
assumed on 26 March 1984 nor did the parties contemplate that
appellants would execute such a note. The fact that the parties
chose not to do so indicates that they did not intend the 1984
contract to have the effect of a new note.
Paragraphs three, four, and eight of the contract evidence
the parties' intent to not create a new note. Paragraph three
states that appellants were to execute a promissory note payable to
Hobbs in consideration for the construction of a home by Hobbs for
appellants. Paragraph eight lists "a promissory note" among
several other documents which the parties were to execute
subsequent to the contract. In contrast, paragraph four of the
contract, which is the basis of the instant suit, makes no mention
of the execution of a new promissory note.
The agreement entered into by the parties on 26 March 1984
was a contract. Under the terms of the contract, appellants
assumed the obligations of the promissory note that Dr. Wagner had
executed on 9 February 1981. Appellants assumed nothing more or
nothing less than the obligations and the corresponding rights
relating to the note. One of the rights relating to the note was
the applicable statute of limitations which ran on 9 February 1991.
Because appellants were not parties to the 1981 note, this
court cannot construe their subsequent agreement of 26 March 1984
as a willingness to pay their existing debt. The execution of the
contract was not the type of expression which the law recognizes as
taking a note out of the original statute of limitations.
The statute of limitations on the promissory note ran on 9
February 1991, ten years after Dr. Wagner executed the note.
Therefore, we are of the opinion that the trial court erred as a
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matter of law in holding that the 1984 contract extended the
statute of limitations on the note until March 26, 1994.
It, therefore, results that the judgment of the trial court
is reversed, and the cause is remanded to the trial court for any
further necessary proceedings.
Costs on appeal are taxed to the plaintiff/appellee, C.A.
Hobbs, Jr., Inc.
__________________________________
SAMUEL L. LEWIS, JUDGE
CONCUR:
__________________________________
HENRY F. TODD, P.J., M.S.
__________________________________
BEN H. CANTRELL, J.
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