# FILED

August 24, 1998

Cecil W. Crowson

Appellate Cou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE

WESTERN SECTION AT JACKSON

______________________________________________

JOE WALDRON,

Plaintiff-Appella

nt,

Bradford Chancery No. 20,214

Vs. C.A. No. 01A01-9712-CH-00740

GARY DELFFS and wife CLARA

DELFFS and JAMES COY DELF FS,

Defendants-Ap

pellees.

__________________

_________________________________________________________ _

FROM THE BEDFORD COUN TY CHANCERY COURT

THE HONORABLE TYRUS C. COBB, JUDGE

John H. Norton, II

I of Shelbyville

Thomas F. Bloom of Na

shville

For Appellant

Allen Shoffner of

Shelbyville

For Appellee, James Coy Delffs

REVERSED AND REMANDED

Opinion filed:

W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.

CONCUR:

ALAN E. HIGHERS, JUDGE

HOLLY KIRBY LILLARD, JU DGE

This case involves an

attempt to recove

r mo ne y on a loan. Plaintiff/Appellant Joe

Waldron (Waldr

on) appeals

from the trial court’s order granting ju dgment on the plead

ings to

Defendant/Appe

llee James Coy Del

ffs.

Waldron’s Complaint alleges that on May 1, 1991, Defendants Gary and Clara Delffs1 Apparently the instrument originally indicated that the amount is due on June 6,

1994, but the docume

nt was subsequentl

y altered by Wald

ron with Gary Del

ffs’s consent to

show “1995,” instead.

2 borrowed from Waldron $50,000 at an interest ra te of thirteen (13 %) percent. This indebtedness

was to be due and payable on May 1, 1992. In July of 1991, Gary and Clara Delffs borrowed

an additional $30,000 from Waldron that was also to be due and payable on May 1, 1992. The

loan was still outstanding on May 1, 1992, at which time Waldron extended the loan for another

year and lent an additional $4,000 to Gary and Clara Delffs. At this time, a note evidencing the

total indebtedness was

signed by Gary an

d Clara Delffs, a

s well as by James Coy D elffs, the

fa ther of Gary Delffs. The sum plus twelve (12%) percent interest was to be due and paya bl e

on May 1, 1993. The loan was again renewed in May of 1993, at which time Waldron alleges

that he was owed the pr

incipal indebtedn

ess of $120,000 plus ele

ven (11%) perc

ent interest

to

be due and payable on May 1, 1994.

When the loan was again not paid off in May o f 1994 , the parties entered into further

negotiations that resulted in the execution on June 10, 1994 of t he note at issue in this case . This

instrument provide

s in pertinent par

t:

---------------------------- - after date

------------- promise to pay

to the order of one hund red and fifty three thousand and four

hundred and fourty dollars Dollars

(The language underlined was written in by hand. Unused space is evidenced by hyphens.) A

copy of the note is attached as an addendum to this Opinion. Although there is some confusion

on the document, Waldronalleges that the note was due and payable by all defendants by June

10, 1995. 1 Alleging that this document is a

promissory note, Waldron sought judgment on the

“note” in the amou

nt of $174,014.72 pl

us interest.

The defendants filed an Answer ad mitting th at Waldron made certain loans to Gary

Delffs but disputin g the amoun ts and interest rates represented in Waldron’s complaint. The

defendants

also averred that the money was loaned solely to Gary Delffs, t

hat the defenda

nts

signed the note in blank, and that the note is unenforceable since no consideration was provided

for the defendants’ signatures. Def endant James Del

f fs fil ed an Amended Answer, CounterClaim, and Cross-Claim

asserting that the note was blank when signed and completed without

authority, the note was “fraudulently and materially altered,” Waldron was not a holder in due3

course, a condition precedent had not been satisfied, the note fails for lack of consideration,

Waldron and the other defendants conspired to deceive him into signing the document, the note

violates the Statu te of Frauds, and the interest rate on the note is usurious. Waldron filed a

summary judgment motion, and James Delffs filed a motion for judgment on the pleadings or,

alternatively, f

or summary judgmen

t.

On January 10, 1997, the trial court entered judgment on the pleadings for James Delffs

and dismis sed the complaint a s to him, finding that t

he instrument fail

ed to qualify as a v

ali d

promissory note. The trial co urt also found that this instrument was not a sufficient

memorandum

of a promise to pay the debt of another to satisfy the Statute of Frauds. In

November

of 1997, the tri al court en tered a judgment a gainst the remaini

ng defendants.

Thereafter, Waldron timel y fil ed a Notice of Appeal of the trial court’s January order. James

Delffs is the sole Appellee in this case.

The sole issue for re

view is whether th

e tria l court erred in granting judgment on the

pleadings to Ja mes Delffs. When a motion for judgment on the pleadings is made by the

defendant,

it is in effect a motion to dismiss for failure to state a claim upon which relief can be

granted. 3 Nancy F. MacLean & Bradley A. MacLean, Tennessee Practice 190 (2nd ed. 1989).

A motion to dismiss for failure to state a claim upon which relief can be granted is the

equivalent of a demurrer under our former common law procedure. Cornporpst v. Sloan

, 528

S.W.2d 188, 190 (Tenn. 1975). Such a motion admits the truth of all relevant and materi al

averments

in the complaint but asserts that such facts cannot constitute a cause of action. Id. at

190. In considering whether to dismiss a complaint for failure to state a claim upon which relief

can be granted the court should construe the complaint liberally in favor of the plaintiff taking

all of the allegations of fact therein as true. Humphries v. West End Terrace, Inc. , 795 S.W.2d

128, 130 (Tenn. App. 1990). A complaint should not be dismissedupon such a motion “ unless

it appears beyond doubt that the plaintiff can prove no set of facts in suppo rt o f the claim that

would entitle the plaintiff to relief. Id. at 130 (quoting Fuerst v. Methodist Hos p. South, 566

S.W.2d 847, 848 (Tenn. 1978)). In the instant case, the complaint seeks recovery on a written

instrument attached as an e xhibit a nd a determi

nation of the valid

ity of the instrumen

t is a

question of

law. Therefore, our

review of the tri

al court’s order

is de novo on the record before

this Court. Warren v. Estate of Ki rk , 954 S.W.2d 722, 723 (Tenn. 1997).

Th e instrument at issue was executed in June of 1994. The Tennessee General Assembly amende d2 This revision was placed into effect on July 1, 1996.

3 This is the supplement to the 1979 bound volume.

4 its version of the Uniform Commercial Code (UCC) in 1995. 2 There is no dispute that the applicab le statutes in th

is cas e

are those that existed at the time that the document was signed in 1994. See Shell v. St ate

, 893 S.W.2d 416, 41 9

(Tenn. 1995) (“[A] basic rule of statutory construction provides th at statutes are to be applied prospectively, unless th e

legislature clearly ind

icates to the contrar

y.”); 17A Am. Jur. 2d Contracts § 254 (1991) (“[I]t is the law in force a t

t he time a contractual transaction is consummated and made effectual that must be looked to as determining its validit y

and effect.”).

Tennessee Code Annotated § 47-3-104 (Supp. 1992) 3 states:

(1) Any writing to b

e a negotiable ins

trument within this c

hapter must:

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay:

(i) a sum certain in money;

(ii) a sum in money which is dete rminabl e

by a formula as provided in the writ ing

, whet her or not such formu

la requires th

e

use of extrinsic criteria; or

(i ii) a sum of mone

y the amount of whic

h

is s ubject to renegotiation upon eit her th e

passage of time or t

he occurrenc

e of a n

event.

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer.

Subsections (c) and (d) are in dispute in the present case. We shall first examine the latter subsection.

Subsection (

d) requires that the instrument be payable to order or bearer. Id. § 47-3-104 (1)(d). Sinc e, th e

parties do not dispute that the document is not order paper, the issue concerns w hether the document constitutes beare r

paper. Tennessee Code Annotated § 47-3-111 (1979) states that an instrument is bearer paper if it is payable to:

(a) bearer or the order of bearer; or

(b) a specified person or bearer; or

(c) “cash” or the order of “cash,” or any other indication which does not purpor t

to designate a specific payee.

Since there is no dispute that subsections (a) and (b) are inapplicable and that the instrument in the present case is no t

ma de payable to “cash” or order thereof, inquiry in this matter focuses on whether the instrument includes “any othe r

indication which does not purport to designate a specific payee.” Id. § 47-3-111 (c).

No Tennessee cases h

ave ad dressed the issue at hand. James Delffs cites decisions in Davis v. Davis

, 83 8

S.W.2d 415 (Ky. App. 1992), and Parker v. Pledger

, 601 S.W.2d 897 (Ar

k. App. 1980), in which courts in ou r

neighboring states held that instruments that contai n blank space where the payee is intended t o be designated are no

t

bearer instruments. These decisions are fully suppor ted by the official comments to § 3-111 of the UCC, as it existe d

at that time, which state:5 Paragraph (c) is reworded to remove any possib le implicatio

n that “Pay to th

e

order of _____” makes an instrument payable to bearer.

T.C.A. § 47-3-111 Comments to Official Text. We find th at these cases a

re inapposite to the case at hand, since th e

parties in the instant case did not leave blank the space designated for the listing of the payee.

James Delf fs als o cites Broadway Mgmt. Corp. v. Briggs

, 332 N.E.2d 131 (Ill. App. 1975), a case i n

which the fa

ctual circumstances are remarkably similar to the instant case. In Broadway Mgmt.

, the instrument a t

issue reads in per

tinent part as foll

ows:

Ninety Days after date,

, we, or either of us, promise to pay to the order of Thre e

Thousand Four Hundred Ninety Eight and 45/100

- - - - - - - Dollars.” (Th e

und erlined words and symbols have been typed in; t he remainder is printed. )

There are no blanks on the face of the instrum ent, any unused sp

ace having bee

n

filled in with hyphe

ns.

Id. at 1 32. After citing the aforementioned portion of the o fficial comments to U.C.C. § 3-111, the Illinois Court found :

The instrument here is not bearer paper. We cannot sa y that it “does no t

purport to design

ate a specific payee.” R

ather, we believe the wording of th e

instrument is clear in its implication tha t the payee’s name is to be inserte d

between the prom

ise and the amount, so that the literal absence o f blanks i s

legally insignific

ant.

Broadway Mgmt.

, 332 N.E.2d at 133. James Delffs also cites Anderson’s treatise o n the UC C, which states :

“When a note is improperly written so tha t the blank for the name of the payee shows the amount to be paid, the pape r

is not bearer paper.” Ronald A. Anderson, Uniform Comme rcial Code § 3-111:4, at 275-76 (3d ed. 1994). However

,

Broadway Mgmt. is the only authority cited by Anderson in support of this contention.

We believe that the holding in Broadway Mgmt. is difficult to reconcile with a reading of the officia l

comments to UCC § 3-111. When interpreting subsection (c), the comments specifically state:

Instruments p ayable to the order of an estate, trust, fund, partnership

, uninc orporated association or office are covered b y the preceding section. Thi s

su bsection applies only to such language as “Pay cash,” “Pay to the order o f

cash,” “Pay to the order o

f one keg of nails,” or other words which do not purpor t

to designate any specific payee.

T.C.A. § 47-3-1 11 Comments to Official Text. Inte rpreting this comment, White and Summers have opined that “i t

appears that any document which directs payment to or to the o rder of an inanimate object qualifie s as a beare r

instrument.

. . .” James J. White and Robert S. Summers, Uniform Commercial Code § 14-4, at 621 (3d ed. 1993); se e

also Crandall, Herbert & Lawrence, Uniform Commercial Code § 16.3.1 (1996).

As stated previo

usly, T.C.A. § 47-3-111 provides that an i nstrument constitutes bearer paper if it is payabl e

to “ any ot her indication which d

oes not purport to designate a specific payee.” Id. § 47-3-111 (c) (emphasi s

added). The provision does not contain a ny l anguage that qualifies the language, “any other indication.” Id. Ther e

is no logical justification for creating a distinction between the designa tion of an inanimate object, such as a keg of nails

,

as the payee and the design

ation of a certain sum of money as the payee. Judicially c reating such a distinction woul

d4 As a practical matter if the testimony of the parties was considered it appears that

the alteration wa

s made with the con

sent of Gary Dell

fs.

6 risk uncertainty for contracting parties, thus thwarting the very intent of the a doption of the UCC. See T.C.A. § 47-1

-

102 (2) (1996). M

oreover, Waldron aptly notes that it would appear to be a “perver sion of logic” if an instrumen

t

payable to “cash” qualifies as bearer paper, whereas an instrument payable to a specific amount of cas h fails to qualif

y

as bearer paper. Therefore, we decline to follow the holding of the Il linois Court in Broadway Mgmt. and, instead

,

hold that the instrument at issue qualifies as a negotiable instrument since it constitutes bearer paper.

Alternatively, James Delffs also asse rt s that the instrument fails to qualify as a negotiable instrument becaus e

it does not s atisfy the requirement in T.C. A. § 47-3-104 (c) that it be payable “at a definite time.” James Delffs argue s

that sinc e Wald ron altered the payable date from “June 10, 1994" to “June 10, 1995," there is ambiguity on the face o f

the document. This contention is without merit for two reasons. First, we are dealing with a motion for judg ment o n

the pleadings, and the note as part of the pleadings indicates that the payment date is June 10, 199 5, which we take a s

true. In any event, a negotiable instrument must be “payable on demand or a t a definite time.” T.C.A. § 47-3-104 (c)

.

If the payable date had not been altered, we know it would have been payable on the date tha t it was executed, June 10

,

1994. Therefore, it should be cons idered a demand note

. See T.C.A. § 47-3-108 (1979); In re: Estate of Myers

,

55 Tenn. App. 195, 206, 397 S.W.2d 831, 837 (1965). Thus, the fact that the note was altered enur ed to the benefit o

f

James Delffs. 4

Since the note at issue satisfies the criteria set forth in T.C.A. § 47-3-10 4, it qualifies as a negotiable instrument

.

Accordingly, the order of the trial court dismissin g plaintiff’s complaint against James Delffs is reversed, and this cas e

is remanded to t

he trial court for such further proceedings as are necessary. Costs of the appeal are assessed against th e

Appellee.

_________________________________ W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.

CONCUR:

____________________________________ ALAN E. HIGHERS, JUDGE

____________________________________ HOLLY KIRBY LILLARD, JU DGE