F ILED

Feb r uar y 19, 1999

C eci l C r o w son , Jr .

A p p e l l a t e C o u r t C l e r k

I N TH E CO U R T O F APP EALS OF TENNESS E E

AT J ACKS ON J ANUARY 1 9 9 9 S E S S I O N

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NAT I ONS BANK, N. A . ( S OUT H ) , ) Shel by C hanc e r y N o . 1098822- 3

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P l a i n tiff / A p p e lle e ) A ppea l N o . 02A 01- 9805- C H -

00134

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v . )

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M I L L I NGT ON HOM E S )

I N V ESTOR S , LTD . , )

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D e f enda n t / A ppel l ant )

A P P E A L F ROM T H E CHANC E RY C OURT OF S H E L BY C OUNT Y

A T M E M PHI S , TEN N ESS E E

T H E HONORAB L E D. J . AL L I S ANDRAT O S , CHANC E L L O R

For t h e A ppe l l ant :

R . G r a tta n B r o w n , J r . ,

L a r r y H . M ont gom e r y , and

C harl es W esl ey F o w l e r ,

G L ANKL E R B ROW N , P L L C

O ne C o m m e r c e Squar e , St e . 1700

M e m phi s , T N 38103

F or the A p p e l l ee:

P h ilip D . Irw i n

N E A L & H A R W ELL, PLC

2000 Fi r s t U n i on T o w e r

150 Four t h A venue N o r t h

N a s hvi l l e , T N 37219

A FFI R M E D

W I L L I A M H . I N M A N , Seni or Judge 

CONCUR:

W . F RANK CRAW F ORD, J u d g e
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.

2Both its 75% interest, and, as agent, the remaining 25%. The total amount attached

was circa $800,000.

2

DAVI D R. F ARM ER, J u d g e

T h i s i s an act i o n t o co l l ect 32 pr o m i s s o r y not e s exe cut ed by t he de f enda n t

i n 1985, 1986, and 1 987 p a y a b l e to U S A F a irf i e l d R eal t y F u n d , L T D . and ass i g n e d

t o C i t i zens F ederal B ank, N . A . , on or der , on D e c e m ber 20, 1991, w i t hout r e c our s e .

A ppendi x A i s a di agram m a t i c exp l anat i o n of t he co m m e r c i a l l i neag e of t h e

def enda n t .

T h e s e ent i t i es ar e i n v est m ent veh i c l es w h o se par ent com pan y , U S A

P r oper t i e s Fund, I nc. ,

1

 ex clusively m a n a g e d t h e b u s i n ess a f f air s o f M i l l i n g t o n

H o m e s , an ap a r t m ent com p l ex l oca t ed i n t he C i t y of M i l l i ngt on w hos e gove r n i n g

body cha nged t he z oni ng des i gnat i on f r o m r e s i dent i a l t o i ndus t r i a l w h i ch, w hen

fin a liz e d , w o u l d h a v e trig g e r e d fo r e c l o s u r e o f th e fe d e r a l fin a n c i ng m o r t gage s .

T h i s l oom i ng pr obl e m gave i m pet u s t o a s a l e of t h e apar t m e n t s to th e C ity o f

M illin g t o n . T he pl a i n t i f f bank, an a l l ege d uns e c u r ed c r edi t o r o f th e def enda n t by

v irtu e o f i t s asse r t e d o w n ersh i p o f th e p r o m isso r y n o tes , fil e d th is a c t i o n to re c o v e r

t h e pr oce eds of t he not e s .

2

 T he de f enda n t pl e a ded ( 1 ) t he ba r o f th e S t a t u t e of

L i m ita tio n s , T . C . A . § 28- 3 - 109( c ) f o r al l not e s dat ed be f o r e J anua r y 14, 1987; ( 2 )

e s t oppel , a lle g i n g th a t th e p l a i n tiff “ r e p r e s e n t e d t o def enda n t t hat i t w oul d accept

a l esse r am o u n t i n sati sfact i o n o f t h e n o t es; (3 ) a g e n eral d e n i al of t h e a l l e g ati o n s .
3At 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

T o t he pl e a d i ng of t he de f enda n t of es t oppel , t he pl a i n t i f f r e l i e d upon t h e S t a t u t e

o f Fr auds , T . C . A . § 29- 2 - 101( b ) ( 1 ) .

T h e m o t i on of th e p l a i n t i f f f o r s u m m a r y j udgm ent w a s gr ant ed upo n a

fin d i n g b y th e C h a n c e l l o r th a t t h e a c t i o n w a s (1 ) n o t t i m e - b a r r ed, an d ( 2 )

not w i t h s t andi ng t hat a di s put e e x i s t ed a s t o w het her th e p l a i n tiff o r a lly a g r e e d to

accept a l ess e r sum t han w as ow i n g on t he n o t es, such d i s p u t e di d not i nvol ve a

m a t e ria l i s s ue b eca u s e t he al l eged prom i se w as never r edu ced t o w r i t i n g . T h e

def enda n t app eal s , and pres ent s f or r evi e w t w o i s s ues w h i ch w e r eprodu ce i n haec

v e r b a :

I . W het her th e tri a l c o u rt erre d in ru l i n g th a t N a t i o n s B a n k ’ s

agreem ent t o accep t a l esse r sum i n s a tis f a c tio n o f M illin g t o n

H o m e s ’ lia b ility , a n d N a tio n s B a n k ’ s a g r e e m e n t t o put t h a t

agreem ent in w ritin g , ar e ba r r ed by t he St a t u t e of Fr auds

p r ovi ded by T . C . A . § 29- 2 - 101( b ) ( 1 ) .

II. W het her th e tria l c o u rt e r r e d in ru lin g th a t th e S t a t u t e o f

L i m ita tio n s pr ovi ded by T . C . A . § 28- 3 - 109( c ) di d not bar any

o f N ati o n s B a n k ’s cl aim s . 3

W e s h a ll re s t a t e in c o n t e x t th e id e n tity a n d p o s t u r e o f th e e n t i t i e s w h o a r e

d ire c tly o r p e rip h e r a lly in v o l v e d in th i s litig a tio n .

T h e d e f e n d a n t, M illin g t o n H o m es, i s a T e n n esse e li m i t e d p art n ersh i p w hos e

gen e r a l p a rtn e r is U S A M illin g t o n H o m e s L T D . U S A M illin g t o n H o m e s L T D is

a T enn ess e e lim ite d p a rtn e r s h i p w h o s e g e n e r a l p a rtn e r is U S A M illin g t o n Ho m e s ,

I n c . U S A M i l l i ngt on H o m e s , I nc. , i s a Tenne s s e e cor por a t i on w hos e st ock i s

o w ned by U S A Pr oper t i e s Fund, I nc.

I n 1984, U S A Pr oper t i e s Fund, I nc. , ent e r ed i n t o a jo i n t v e n t u r e w ith

E qui t abl e S e r v i c e s C o r p o r a tio n (“ E q u ita b l e ” ), a s u b s i d i a r y o f C itiz e n s F e d e r a l
4

Savi ngs & L oan A s s oci a t i o n , l a t e r kn o w n as C i t i zens F ederal B ank ( “ C i t i zens”) .

T h e j o i n t vent u r e w a s nam ed U S A / Fai r f i e l d R e a l t y Fund L T D (“ U S A F a irfi e 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 t n e r o f U S A F a i r f i e l d , a n d

E q u i t a b le w a s its so le lim i t e d p a rtn e r .

O n D e c e m b e r 3, 19 9 1 , U S A Fa i r f i e l d , U S A P r oper t i e s Fund, I nc. and

E qui t abl e e n t e r e d in t o a n agr e e m ent w her eby E qui t abl e w oul d t r ans f e r 3. 65% of

its lim ite d p a r t n e r s h i p in t e r e s t in U S A F a i r f i e l d to U S A P r o p e r tie s F u n d , In c . , and

t r a n s f e r 9 6 . 3 5 % o f its lim ite d p a rtn e r s h i p in t e r e s t in U S A F a irf i e l d to U S A

F a irf i e l d . P u r s u a n t to th i s a g r e e m e n t, U S A F a irf i e l d a s s i gned t o E qui t abl e a n

undi v i ded 75% i n t e r e s t i n and t o t he pr oce eds o f 3 2 pr o m i s s o r y not e s m ade by

M illin g t o n H o m es ( t he “N o t es”, w h i ch, as of O c t ober 30, 1991, had a n aggr ega t e

p r i nci pal bal anc e of O ne M i l l i on For t y Thousa nd D o l l a r s $$1, 040, 000. ) .

U S A / F a i r f i e l d w a s to re t a i n th e re m a i n i n g 2 5 % in t e r e s t in th e N o t e s . 

T he a g r e e m ent al s o pr ovi ded t hat :

T h e a s s i g n m e n t o f th e M illin g t o n N o t e s s h a ll b e e f f e c t u a t e d b y

F a irfi e l d ’ s d e liv e r y o f th e M illin g t o n No t e s t o C i t i zens F ederal B ank

a s A gent pur s uant t o an A genc y A g r e e m ent . . . w h i ch shal l be

exe cut ed by Fai r f i e l d and E qui t abl e .

U S A F a i r f i e l d e n d orsed each of t h e N otes assi g n i n g “. . . a ll o f its rig h t, title ,

and in t e r e s t in a n d to th e w ith i n in s tru m e n t, w ith o u t r ecou r se, t o C i t i zens F ederal

B ank. ” U S A F a irf i e l d th e n d e liv e r e d th e N o t e s to C itiz e n s w h i c h h e l d th e m a s

A gent f o r Fai r f i e l d and E qui t abl e a s ow ner s of 25% and 7 5 % i n t e r e s t s i n t he N o t e s ,

r espect i vel y .

O n A p r il 9 , 1996, M i l llin g t o n H o m e s c o n tra c t e d to s e ll th e a p a rtm e n t s in

M illin g t o n , T enn ess ee, t o t h e C ity o f M ill i n g t o n , T e n n e s s e e . T he S a l es A greem ent

r e q u ired th e se l l e r to n o t i f y th e b u y e r o n or bef o r e J une 24 , 1996, w het her i t had

obt a i ned th e “ S e l l e r’s A ppr oval s , ” w h i ch r equi r ed t he a ppr oval s of t h e M illin g t o n
5

H o m e s part ners and such credi t ors o f th e se l l e r, as in se l l e r’s ju d g m e n t, it d e e m e d

necessar y .

P a r agraph 3. 2 o f th 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 rtin e n t p a rt a s fo llo w s :

E scr o w C l o s i ng Per i od. T he E scr o w C l o s i ng s hal l occ u r on or bef o r e

t h e e x p ira tio n o f th irty (3 0 ) d a y s fo l l o w i ng t he late r o f n o t i c e fro m

B uyer to S e lle r o f th e fu lfillm e n t of B u y e r ’ s C o n t i n g ency E ven t s ( a s

d e fin e d bel o w ) , and not i c e f r o m Sel l e r t o B uyer o f th e fu lfillm e n t o f

S e l l e r’s C ont i ngenc y E vent s ( a s def i ned be l o w ) , but i n no e vent shal l

t h e E scr o w C l o s i ng oc cur l a t e r t han A ugus t 1, 1996 ( t he “ E s c r o w

C l o s i n 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 vent s s hal l be gi ven by B uye r t o Sel l e r on or bef o r e J une 24, 1996,

( “ B u y e r’s N o t i ce D a t e”) , and not i c e of f u l f i l l m e n t o f S e l l e r’s

C ont i nge ncy E vent s s h a l l be g i ven b y Sel l er t o B uyer on or bef o r e

June 24, 1996, (“ S e l l e r’s N o t i c e D a te” ) . B u y e r ’ s fa ilu r e to gi ve s uch

not i c e on or bef o r e B uye r ’ s N o t i ce D a t e shal l be d eem ed B u y e r ’ s

accept ance t hat B uye r’s C ont i ngenc y Event s have bee n f u l f i l l ed or

w a i ved , a n d S e l l e r’s fa ilu r e to g i v e s u c h n o t i c e o n o r b e f o r e S e l l e r’s

N o tic e D a t e s h a ll be d eem ed S e l l e r ’ s accept ance t hat S e l l e r ’ s

C ont i ngenc y Event s have bee n f u l f i l l ed or w a i ved.

P a r agraph 4. 2 . 2 . 1 of t he Sa l e s A g r e e m ent pr ovi ded i n per t i nent par t as

f o llo w s : 

S e l l e r’s A ppr oval s . T he sal e of t he R eal P r o p e r t y t o B u y e r i s

con t i ngent upon Sel l e r s obt a i n i ng app r oval of s uch s a l e by ( a ) t h e

p a rtn e r s o f S e lle r and t he pa r t ner s o f th e g e n e r a l p a rtn e r o f S e l l e r a s

r equi r ed by t he a ppl i c a b l e li m i t e d p a rtn e rsh i p a g r e e m e n t(s), and ( b )

such cre d i t o rs o f S ell er as i n S e l l er’ s j u d g m ent m ay b e necessary,

( “ S e l l e r’s A ppr oval ” ) , and S ell er’s d eli v e ry o f w r i t t e n co n f i r m a t i o n

o f S ell er’s A p p r o v a l s t o B u y e r . S e lle r s h a ll c o m m e n c e its e f f o rts to

obt a i n such ap proval s as soon as pr act i cabl e a fte r e x e c u tio n o f th i s

A greem ent by B u y e r and S e l l e r . S e l l e r s h a ll d ilig e n tly p u r s u e th e

secur i n g of s uch a ppr oval s , and s hal l pr o m p t l y not i f y B uye r of t h e

obt a i n i n g o f S e l l e r’s A ppr ova l s o r o f a n y fa c t o r o c c u r r e n c e w ith

r espect to a fa ilu r e o f S e lle r to o b t a i n S e l l e r’s A p p r o val s as soon as

p r a c tic abl e a fte r d i s c o v e r y th e r e o f, b u t in a n y e v e n t, n o t la t e r th a n

S e lle r ’ s N o tic e D a t e .

B y le tte r d a t e d A p ril 1 9 , 1996, H e r zog i n f o r m ed C h r i s t i ne M o s s , a

N a t i o n s B ank V i c e - P r e s i d e n t in T a m p a , F l o rid a , o f M illin g t o n H o m es’ pr opos e d

sal e of t he ap a r t m ent s and sent her a cop y o f t he S a l es A greem ent w h i ch i m p o sed

a dea d l i ne of J une 24 , 1996. W het her H e r zog, fo r th e def enda n t , and M o s s , f o r 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

p lain t i ff, or a l l y ag reed t o a red u cti o n o f t h e a m o u n t o w i n g o n t h e N o t es, i s

d i s put ed; l i k e w i se, w het her M oss agr eed t o reduce t he p urport ed o r a l agreem ent

t o w ritin g is d i s p u t e d . If a re s o l u tio n o f th i s n a r r o w is s u e w as r e l evan t and

m a t e ria l to a di s pos i t i o n o f th e c a s e , it is c lea r th a t t h e m o t i o n fo r su m m a r y

j udgm ent w a s i m p r ovi dent l y gr ant ed. See, B y r d v . H a ll, 847 S. W . 2d 208 ( T enn.

1 9 9 3 ) ; R u l e 56 , 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). For t he pur pos e s of t h i s opi n i on, and

n o o t h er, w e a ssu m e , as d i d t h e C hanc e llo r, th a t th e p l a i n tiff o r a lly a g r e e d to

com p r o m i s e t h e d e b t an d t o ac c e p t a lesser sum [32 % ] t han w a s ow i ng on t h e

agg r egat ed N o t es, and t hat such ag r eem ent w as never r edu ced t o w r i t i n g .

T h e defendan t agrees t hat t he o r a l agreem ent w a s nev e r r edu ced t o w ritin g ,

despi t e , as w e r ead t he recor d , i t s r epeat e d and u nava i l i ng ef f o r t s t o per s uade th e

p lain t i f f t o do s o . I n l i ght of t he l angua ge of T . C . A . § 29- 2 - 1 0 1 ( b )(1 ) , 4 t h e
7

def enda n t s e e k s t o avoi d t he a ppl i c a t i on of t he St a t u t e of Fr auds upon t he t heor i e s

o f pr o m i s s o r y a nd equ i t abl e e s t oppel .

P r o m i s s o r y est o p pel i s def i ned i n A m a c h e r v. B r o w n - F o r e m an C o r por a t i on,

826 S. W . 2d 480 ( T enn. A pp. 1991) . I t i s

“ [ A ] pr o m i s e w h i ch t he pr o m i s o r s houl d r e a s onabl y e xpec t t o i nduce

act i o n o r fo r b e a r a n c e on t he pa r t of t he pr o m i s e e or a t h i r d per s on and

w h i c h does i nduce s uch a c t i on or f o r bea r anc e i s bi ndi ng i f in j u s tic e

c a n be a voi ded on l y by e n f o r c e m ent of t he pr o m i s e . . . ”

A m ache r w a s not conc e r ned w i t h t he i s s ue of t he St a t u t e of Fr auds , but we

r e f e r to it fo r d e fin itio n a l p u r p o s e s . W e a r e n o t a w a r e o f a n y d e c i s i o n a l la w o f th i s

S t a t e w h i c h ad d resses t h e p reci se iss u e; t o t h e c o n t rary, t h e thru s t o f t h e ca ses is

t h a t pr o m i s s o r y e s t oppel i s not r e c ogni z e d as an e xce p t i on t o t he St a t u t e of Fr auds .

S e e , e . g ., S .I.B . C . v . F o r d M t r . C r e d it C o ., 911 S. W . 2d 720 ( T enn. A pp. 1995) . 

E q u ita b l e est o p pel , a di s t i nct and di spar a t e do c t r i ne, i s r ecog n i zed i n

T enn ess e e as an e xce p t i on t o t he St a t u t e of Fr auds . S e e , e . g ., B a lile s v . C itie s S e r v .

C o . , 578 S. W . 2 d 621, 624 ( T enn. 1979) . C a s e s i n w h i ch i t i s r e c ogni z e d are t h o s e

“ w here t o en f orce t he S t a t u t e of Fr auds w oul d m ake i t an i n s t r u m ent of har d s h i p

and oppr e s s i on, ver g i n g on ac t ual f r aud. ” I d . T he el e m ent s of equ i t abl e est o p pel

a r e :

( 1 ) C ond u c t w h i ch am o u n t s t o a fal se r epres ent a t i o n or

con ceal m ent o f m a t e ria l fa c t s , o r, a t l e a s t, w h i c h is

cal cul a t e d t o co n v ey t he i m pres s i o n t hat t he fact s ar e

o t h e r w i s e t han, a n d i ncons i s t ent w i t h , t hos e w h i ch t h e

part y sub sequen t l y at t e m p t s t o asser t ;

( 2 ) I n t e n tio n , or at l east exp ect a t i o n t hat such co n d uct shal l

be ac t ed upon by t he ot her par t y ;

( 3 ) K n o w l e d g e , ac t u al or co n s t ruc t i v e o f t h e real f a c t s .

A s re late d to th e p a rty c laim i n g th e e sto p p e l t h e y a r e :

( 1 ) L ack of know l edge and o f t he m e a n s o f k now l edge of

t h e tru t h a s to th e fa c t s in q u e s tio n ;
8

( 2 ) R e l i anc e upon t he c onduct of t he pa r t y e s t opped; and

( 3 ) A c tio n bas ed t her eon of s uch a ch a r act e r as t o ch ang e

h i s p o s itio n p r e j u d i c i a lly .

T h e al l eged or a l a g r e e m e n t b y th e p l a i n tiff to re d u c e th e o r a l a g r e e m e n t to

w ritin g d o e s n o t es t o p th e p lain t i ff fro m it s re lia n c e on t he St a t u t e of Fr auds . I n

P a t t erso n v. D a vis, 192 S. W . 2d 227 ( T enn. 1 946) , t he C our t r e f u s ed t o al l o w an

agreem ent t o reduce a co n t r act to w ritin g to ta k e t he und e r l y i ng con t r a c t out of t h e

S t a t u t e , hol d i ng t hat “ [ S ] uch a n agr eem ent , i f w e ass u m e i t t o h ave b een m ade,

avai l s not h i ng, f o r a pa r o l cont r a c t , unenf o r c e abl e unde r t he St a t u t e , i s not m ade

b i n d i n g b y a fu r t h 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 hor t , w e f i nd no e v i denc e of over r e a chi ng or f r aud i n t h i s r e c o r d . An d

w e agree w ith th e C h a n c e llo r th a t th e r e is no ev i denc e of t he de f enda n t ’ s r e l i anc e

upon th e a l l e g e d o r a l p r o m ise to re d u c e t he de b t , w h i ch w oul d have bee n a s i m p l e

m a t t e r , if n o t h i n g e l s e , o f a c r e d ito r ’ s g r a c e . T he de f enda n t ar gues , i n t e r a lia , th a t

i t obt a i ned t h e lim ite d p a rtn e r s ’ a p p r o v a l o f th e s a l e o f th e a p a rtm e n t s to th e C ity

o f M illin g t o n b a s e d u p o n its re p r e s e n t a tio n to th e m th a t t h e p lain t i ff w o u l d re d u c e

its debt [ w h i ch w oul d r e s u l t i n a g r e a ter p a y m e n t t o th e li m i t e d p a rtn e rs]. B u t th e

r ecord r eve a l s t hat t he de f enda n t s ought s uch a ppr oval m any w e e k s bef o r e t he or a l

s t a t e m ent s w e r e m ade. M oreover, t he recor d i s cl ear on t he poi n t t hat t he r e z oni n g

w oul d re s u lt in a fo r e c l o s u r e o f th e f ederal m o r t gage s , t her eby “ w i p i ng out ” t h e

l i m i t e d p a rtn e rs.

Sum m a r y j udgm ent ca nnot be gr ant ed i f t her e i s a ge nui ne di s put e a s t o a

m a t e ria l fa c t. R u l e 5 6 , T . R . C . P ., B yrd v. H a l l , su p r a . In m a k i n g a d e t e r m i n a tio n

o f w het her a g e n u i n e issue o f m a teria l fac t ex ists, t h e C o u rt m u st tak e th e stro n g e s t

l e g itim a t e v i e w o f th e evi denc e i n f avor of t he non - m ovi ng par t y , al l o w al l

r easonab l e in f e r e n c e s in fa v o r o f th a t p a rty a n d d i s c a r d a ll c o u n t e r v a ilin g e v i d e nce.
9

I f th e r e is a di sput e as t o an y m a t e r i a l f act or dou b t as t o conc l u s i ons t o be d r a w n

fro m th a t fa c t, o r u n c e rta i n t y a s to w h e t h e r m a t e ria l fa c t s a r e in di s put e , s u mma r y

j udgm ent m u s t be de n i ed. I d .

A s st ated , w h ethe r t h e p l ainti f f o ral l y ag reed t o ac c e p t a lesser sum [32 % ]

i n pay m ent of t he de b t , and a g r e e d t o r educ e t he or a l agreem ent t o w ritin g , is

d i s put ed. T hese ar e t he o n l y fa c t u a l d i s p u t e s th a t th e d e f e n d a n t id e n tif i e s . T h e

i ssu e t h e n b e c o m es w h ethe r suc h d i s p u t es a r e m a t e ria l. W e a g r e e w ith th e

C h ancel l o r th a t n e ith e r is m a t e ria l a n d n e ith e r c r e a t e d a g e n u i n e is s u e fo r tr i a l .

C oncl u s i v e p r o o f th a t t h e p lain t i ff a g r e e d a s al l ege d w oul d ava i l t he de f enda n t s

not h i ng i n l i ght of t he pl a i n l angua ge of t he St a t u t e . P a t t erso n v. D a vis, su p r a .

T h e is s u e o f th e S t a t u t e o f L i m ita tio n s is a m o r e d i f f i c u lt o n e . T . C . A . § 28-

3 - 1 09( c ) p r o v i des t hat t he cau se of act i o n on dem and no t es s hal l be co m m enced

w i t h i n t en (10) year s af t e r t he cau se of act i o n i s accr ued . A cause of act i o n on a

dem and no t e , by st a t u t e , accr ues at t he t i m e of t he m aki n g of t he n o t e . T . C . A . §

28- 1 - 102.

T w e n t y - s i x o f th e th irt y -tw o n o tes w e r e m ade m ore t han t en y ear s bef ore

January 14, 1997, t he da t e t he c o m p l a i n t w a s f i l ed. N o t h i ng m o r e a ppea r i ng, s uch

a s an ag r eed ex t ensi o n , r enew a l s , or a par t i a l pay m ent , t w ent y s i x of t he not e s ar e

t i m e - b a rre d .

T h e C han cel l or r u l ed t hat an ag r eem ent b e t w e e n U S A / F a irf i e l d , E qui t abl e ,

and C itiz e n s to lle d th e S t a t u t e . T h i s agr eem ent w as ent e r ed i n t o o n D ecem ber 20,

1991 “ by a nd a m ong U S A / F a irf i e l d R e a lty F u n d , L T D , (F a irf i e l d ) a C a lifo r n i a

lim ite d par t ner s h i p , E qui t abl e Se r v i c e s C o r por a t i on, a n d C i t i zens F ederal B ank ,

( a g e n t). ”
10

B y th i s A g r e e m e n t, F a irf i e l d (1 ) d e liv e r e d to C itiz ens F ederal B ank t h e

o rig i n a l no t es execut e d by M illin g t o n H o m e s In v e s t o r s , L T D .; (2 ) r e t a i n e d a 2 5 %

i n tere s t i n t he N o t e s , and ( 3 ) E qui t abl e receive d a 7 5 % i n t erest . It w as agr eed t hat

C i t i z e n s Fede r a l B ank w oul d hol d t he not e s as a g e n t fo r F a irf i e l d a n d E qui t abl e .

T he A g r e e m ent pr ovi ded:

3 . D e m and f o r pay m ent of not e s .

“ N o t w ith s t a n d i n g th e s t a t u s o f th e M illin g t o n N o t es as

dem and not e s , A gent s hal l not m a k e de m and f o r

pay m ent th e r e o f p rio r to A ugus t 1, 1997 unl e s s one o f

t h e f o l l o w i ng eve n t s occ u r s , i n w h i ch case A gen t shal l

m ake d e m and f or paym ent : ”

( a )(b )(c )

O f th e c o n t i n g e n c ies m a teria l h e r e , th e first t o o c c u r w a s t he sal e by t h e

def enda n t of anot her as set r e f e r r ed t o as F l ag M ano r A part m ent s i n D ecem ber,

1995, w h i ch t r i gger ed t he pl a i n t i f f ’ s r i ght t o dem and pa y m ent .

T he de f enda n t ar gues t hat t h i s A genc y A g r e e m ent , hel d by t he C hanc e l l o r

t o h a v e to lle d th e S t a t u t e o f L i m ita tio n s , i s not bi ndi ng on t h e d efen d a n t b e c a u s e

i t w as not a part y th e r e t o and t hat cr edi t o r s ca nnot agr e e w i t hout t he c ons ent of t h e

d e b t o r to im p a ir a d e b t o r ’ s a b ility to in v o k e th e S t a t u t e o f L i m ita tio n s .

C ount e r i n g th is a r g u m e n t , th e p lain t i ff in sists th a t t h e d e f e n d a n t is a lim ite d

p a rtn ersh i p w h o s e s o l e g e n e r a l p a rtn e r, U S A M illin g t o n H o m e s , L T D , is a l s o a

lim ite d pa r t n e r s h i p . U S A F a irf i e l d R eal t y L T D i s t he sol e l i m i t ed p a r t ner of U S A

M illin g t o n H o m es, L T D , an d i s a C a lif o r n i a lim ite d p a r t n e r s h i p . U S A F a irfi e l d ’ s

s o l e gen e r a l p a r t ner i s U S A Pr oper t i e s Fund, I nc. , w h i ch i s t he de f enda n t ’ s

m ana g i n g agen t . T he M i l l i n g t o n no t es at i s s ue i n t h i s cas e , a nd t he A genc y

A greem ent , w e r e execu t e d by U S A F a irf i e l d R e a lty L T D , th e s o l e lim ite d p a rtn e r

o f t he ge ner a l par t ner of t he de f enda n t . E d w a r d H e r zog w a s a n o f f i c e r f o r b o t h th e
11

def enda n t and U S A Pr oper t i e s , w h i c h w a s t he pa r ent com pany of t he de f enda n t

and , as s t a t ed, t he m anag i n g agen t .

G i v e n t hese ci r cum s t ances, w e r e j ect t he argum ent of t he d e f end ant -

app e l l ant t hat t he A genc y A g r e e m ent w a s not bi ndi ng on i t . T he i ncongr u i t y of t h e

def enda n t ’ s arg u m e n t ap p e a rs i n v ari o u s asp e c t s , n o t t he l eas t o f w h i c h is its

i nsi s t ence t hat i t s par ent com pany and m ana g i ng age n t , U S A Pr oper t i e s Fund, I nc. ,

had no au t hor i t y t o bi nd i t by t he A genc y A g r e e m ent , on t he one hand, but t hat

U S A Pr oper t i e s Fund, I nc. , had t he a u t hor i t y t o bi nd t he pl a i n t i f f t o an o r a l

agreem ent on i t s beha l f , on t he ot her . M o r eove r , t he de f enda n t ’ s audi t ed f i nanc i a l

s t a t e m ent s f r o m 1991 t o 1996 de s c r i be t he M i l l i ngt o n n o t es a s “ad v a n c e s fr o m

a f f ilia t e ” and em p h asi z e t hat no de m and c an be m ade on t he not e s bef o r e A ugus t

1 , 1997 except upon sa l e or r e f i nanci ng of t he pr oper t y .

W e agree w i t h t he C hanc e l l o r t hat t he 199 1 A g r e e m ent cha nged t he da t e of

t h e com m enc e m ent of t he r unni n g o f th e S t a t u t e , a n d th a t th e c o m p l a i n t w a s tim e l y

file d .

T h e C hanc e l l o r f u r t her r e s ponded t o t he i s s ue of t he St a t u t e of L i m ita tio n s

b y hol d i ng t hat t he pa r t i e s agreed by a “pat t e r n of condu c t t o m odi f y t he not e s i n t o

a si n g l e i n d ebt edn ess ” w h i ch w as ackno w l e d ged by a pay m ent by t he de f enda n t

i n D e c e m ber 1995 w h i ch r e c o m m enced t h e r unni ng of t he St a t u t e . T he r e c o r d

i n d i c a t e s th a t b e f o r e th e c o m p l a i n t w a s f i l ed t he de f enda n t cons i der ed t he not e s to

b e one d ebt , i . e . , an a ggr ega t e d debt w i t h a c o m m on i n t e r e s t not e and c o m m on dat e

o f m a t u r ity . P aym ent s w e r e a l w a y s m ade “ on t he de b t , ” or on “ t he M i l l i ngt o n

N o t es. ” M r . H erzo g so te s tifie d . A hos t of docum ent s t r e a t t he not e s as one d ebt ;

i n a M ay 2 2 , 19 9 6 l e t t e r t o i t s l i m i t ed p a r t ners , t he d e f end ant r e f e r ences t he de b t

as t he “N a t i o n s B ank ( u n secur ed n o t e ) ” .
12

A p a rtia l p a y m e n t o f a d e b t is a n ac know l edgm ent of t he de b t and r a i s e s an

i m p lie d pr o m i s e t o pay t he ba l anc e ow i ng. S e e , G r a v e s v. S a w y e r , 588 S. W . 2d 542

( T enn. 1979) ; F arm ers & M erchan t s B a n k v. T e m p l e t o n , 646 S. W . 2d 920 ( T enn.

A pp. 1982) . I n t he ci r cum s t ances of t h i s busi ness m a t t e r w e t h i nk t he hol der of t h e

not e s w as f r ee t o credi t t hem as i t cho se. W e a g r e e w ith th e C h a n c e llo r th a t th e

vol unt a r y pa y m ent i n 1995 r e c o m m enc ed t he r unni ng of t he St a t u t e .

For t he reas o n s di scuss ed, t he j u d g m ent i s af f i r m e d at t h e c o s t s o f t h e

a p p ell a n t an d t h e c ase i s rem a n d e d for al l ap p rop r i ate p u rpo ses.

 

_______________________ ________

W i l l i a m H . I n m an, Seni o r J udge

CONC UR:

_______________________ ________

W . Fr ank C r a w f o r d , J udge

_______________________ ________

D avi d R . Far m e r , J udge