# F I L E D
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 ) , ) Shelby C hanc e r y N o . 1098822- 3 ) P l a i n tiff / A p p e lle e ) A ppea l N o . 02A 01- 9805- C H

- 00134 ) v . ) ) M I L L I NGT ON HOM E S ) I N V ESTOR S ,LTD
. , ) ) D e f enda n t /A ppel l ant )

A P P E A LF ROM

T H ECHANC

E RY C OURT

OFS H E L BY C OUNT Y A T M E M PHI S ,TEN N ESS E E T H EHONORAB L ED. J
. AL L I S ANDRAT O S , CHANC

E L L O R
Fort h e A ppe l l ant : R . Gr a tta n B r o w n , J r . , L a r r y H
. M ont gome r

y , and C harles W

esley F o w l e r , G L ANKL E R B ROW

N , P L L C O ne Co mm e r

c e Square , 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 tU n i on T o w e r 150 Four t h A venue

N o rt 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 e1 Edward Herzog i s an officer and

/or an agent for a

ll but one (USA Milling

ton Homes, Ltd.) of these co

mmercial 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 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 ect32 pr o mi s s o ry note s exe cut ed by the de f enda n t i n 1985, 1986, and 1 987 p a y ab l e to U S A F a irfi e l dR 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 order

, on D e ce m

ber 20, 1991, w i t hout

r e cour s e . A ppendi x A i s a di agram

m a t i c exp l anat i o n ofthe co mm 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 th 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 om e s , an ap a rt m ent com p l ex l oca t ed i n the C i t y of M i l l i ngt on w hos e gove

r n i n g bodycha nged t he z oni ng des i gnat i on f r o m r e si dent i a l t o i ndus tr i a l

w h i ch, w hen fin a liz e d , w o u l dh 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 rt gages . 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 th e apar t me n t s to th e C ityo 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 tby
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 misso r y n o tes , file d th is a c t i o n to

re c o v e r t h e pr oce eds of the not e s . 2 T he de

f enda n tpl e a ded ( 1 ) the ba

r o f th e S t a t u t e of L i mitatio n s , T . C . A . § 28- 3 - 109( c ) f o r al l not e s dat ed be f o r e Janua r y 14, 1987; ( 2 )
e st 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 tthat i tw oul d accept
al esse r amo u n ti 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 atio n s .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 T o the pl e a d i ng of the de f enda n tof est oppel , the 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 mm a r y j udgment

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 lo r tha t t

h e a c t i o n w a s (1 ) n o t t i m e - b ar r ed, an d ( 2 ) not w i t h s t andi

ng that 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 llya g r e e d to accept a l ess e r

sum than w as ow i n g on the 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 sue b ecau s e the al l eged promi se w as never r edu ced t o w r i t i n g . T h e def enda n tapp eal s ,and pres ent s f

or r evi e w t w o i s sues 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 in g tha t Na t i o n s B a n k ’ s agreem ent t o accep tal esse r sum i n s a tis f a c tio n o f M illin g t o n H om 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 rr ed by the 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 mitatio n s pr ovi ded by

T
. C
. A
. § 28- 3 - 109( c )

di d not bar any o f N atio 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 titya n d p o s t u r e o f th e e n t i t ie s w h o ar e d ire c tlyo r p e rip h e r a llyin 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, Millin g t o n H o m es, i s a T e n n esse e li mi t e d p artn ersh i p w hos e gen e r a l p artn 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
aT enn ess e e lim

ite d p artn e r s h i p w h o s e g e n e r a l p artn e r is U S A M illin g t o n Hom e s , I n c . U S A M i l l i ngt on H o me 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 itab l e ” ), as u b s i d i ar y o f C itiz e n s F e d e r a l4

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 tvent

u r e wa 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 irfie 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 ar 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 ab le w a s its so le lim

i t e d p artne 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 tr ansf

e r 3. 65% of its lim ite d p ar 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 artn e r s h i p in t e r e s t inU S A F a irfi e l dto U S A F a irfi 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 irfi e l da s s i gned t o E qui t abl e a n undi v i ded

75% i n t e r

e sti n and t o the pr

oce eds o f 3 2 pr o mi s s o ry note 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 balanc 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 assig n i n g “.
. . a ll o f its rig h t, title , and in t e r e s t ina n d to th e w ith i n in s tru m e n t, with o u tr ecou r se,t o C i t i zens F ederal B ank. ” U S A F a irfi e l dth 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 dth 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 st s i n the 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 ap artm 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 le r to n o t if y th e b u y e r o n or

bef o r e J une 24 , 1996, w het

her i thad obt a i ned th e “ S e l le r’s A ppr oval s , ” w h i ch r equi r ed t he a ppr oval s of

th e M illin g t o n5

H om e s part

ners and such credi t orso f the se l le r, as in se l le 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 art 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 the late r o f n o t ic e fro m B uyer to S e lle r o f th e fu lfillm e n tof 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 mSel l e r

t o B uyer o f th e fu lfillm e n t o f S e l le 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 than A ugus t1, 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 uyer 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 lbe 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 ic 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 that

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 le 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 le 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

the Sal e s

A g r e e m ent pr ovi ded i

n per t i nent par tas f o llo w s : S e l le r’s A ppr oval s . T he sal e of t he R eal P r o p e rt y t o B u y e r i s con t i ngent

upon Sell e r

s obt a i n i ng app r oval of s uch s a l e by ( a ) th e p artn e r s o f S e lle r

and t he pa rt ner s o f th e g e n e r a l p artne r o f S e l le r a s r equi r ed by the a ppl i c a b l e li mi t e d p artne 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 ju d g m ent m ay b e necessary, ( “ S e l l e r’s A pproval ” ) , 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 to B uy e r . S e lle r s h a ll c o mm 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 tlyp 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 uyer of th e obt a i n i n g o f S e l le 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 espectto afa 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 ina n y e v e n t, no t lat 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 inT 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 sale of the ap a rt m ent s and sent her a cop y o f the S a l es A

greem ent w h i ch i m

p o sed
adea d l i ne of J une 24 , 1996. Whet

her H e r zog, fo r th e def

enda n t , and M o s s , f o r th e4 The statute provid es 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, amen d, r enew, extend or otherwise modify or supplement any write promise, agreement or commitmentto lend money or extent credit , unlessthe promise or agreement,

upon which such action shall be brought, or some memorandum

or note thereof, shall beinwriting and signed by the lender or creditor, or some

other person by hi

m thereunto lawfu

lly authorized. 6 p lain t iff, or a l l y ag reed t o a red u ctio n o f t h e a m o u n to w i n g o n th e N o t es, i s d i s put ed;l i k e w i se,w het her Moss 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 ar r o w is s u e w as r e l evan tand
m a t e ria l to adi s pos i t i on o f th e c a s e , it is c lea r tha t t

h e m o t i o n fo r su mm ar y j udgment w a s i m p r ovi dent l y grant ed. See, B

y r d v . H a ll, 847 S. W
. 2d 208 ( T enn. 1 9 9 3 ) ; R u le 56 , T. R
. C
. P. Our review of the fin

dings of fact made by

the trial Court is de novo upon the record of

the trial Court, a

ccompanied by a pres

umption of

the correctness of the finding, unless the pr

eponderance of the

evidence isotherwise. T ENN . R. A PP . P., R ULE 13(d); Campbell v. F lorida Steel Corp ., 919 S.W.2d 26 (Tenn. 1996). Where there is no conflictin the evidence as to any material fac

t, the question

on appeal is one of law, and t he scope of review

is de novo with no presumption of correctness

accompanying a chan

cellor's c o nclusions of law. Union Carbide Corp.
v. Huddleston, 854 S.W.2d 87 (Te nn. 1993)
. For the pur

pos e s of th i s opi n i on, and
n o o t h er, w e a ssu m e , as d i d th e C hance llo r, th a t th e p l a i n tiff o r a llya g r e e d to
com p r o mi s e th e d e b tan d t o ac c e p ta lesser sum [32 % ] t han w a s ow i ng on t

h e agg r egat ed N o t es,and that such ag r eem ent w as never r edu ced t o w r i t i n g . T h e defendan tagrees

that the 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 rt s t o per

s uade th e p lain t if f t o do s o . I n l i ght

of the langua

ge of T
. C
. A
. § 29- 2 - 1 0 1 ( b )(1 ) , 4 t h e7

def enda n ts e e k s t o avoi d the a ppl i c a t i on of the St a t u t e of Fr auds upon t he t heor i e s o f pr o mi s s o ry a

nd equ i t abl e e s t oppel
. P r o mi s s o ry est

o p pel i s def

i ned i n A m a c h e r

v. B ro w n - F

o re m an C o r por a t i on, 826 S. W
. 2d 480 ( T enn.A pp. 1991)
. I ti s “ [ A ] pr o mi s e w h i ch t

he pr o mi s o r s houl d r e a

s onabl y e xpec tt o i nduce act i o n o r fo r b e ar a n c e on the pa r tof the pr o mi 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 the pr o mi s e .. . ” A m ache r w a s not conc e r ned w i t h the i s s ue of

the 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 ar e n o t a w ar 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 th e c o n trary, th e thru s to f t h e ca ses is t h a tpr o mi s s o ry e s t oppel

i s not r e cogni z e

d as an e xce p t i on t o the 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 itab l e est

o p pel , a di s t

i nct and di spar a t e do c tr 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 the St a t

u t e of Fr auds
. S e e , e . g ., B

a lile s v . C itie s S e rv . C o
. , 578 S. W
. 2 d621, 624 ( T enn.1979)
. C a s e s i n w h i ch i

ti s r e cogni 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 ofFr auds

w oul d m ake

i tan i n s tru ment

of har d s h i p and oppre 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 tw 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 , or, 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 that the facts ar e o t h e r w i s e than,

a n d i ncons

i s t ent w i t h , thos 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 that 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 truc t i v e o f t h e real f a c t s . A s re late d to

th e p arty c laimi ng th

e e sto p p e l t

h e y ar e : ( 1 ) L ackof

know l edge

and o f the 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 the conduct

of the pa r t y e s t opped;

and ( 3 ) A c tio n based 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 iff fro m

its re lia n c e on the 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) , the Courtr e f u s ed t o al l o w an agreem ent t o reduce a co n t r actto w ritin g to tak e the und e r l y i ng con tr a c tout of th e S t a t u t e , hol d i ng that

“ [ S ] uch a

n agr eem ent , i f

w e assu m e i tt o h ave b een m ade, avai l s noth i ng, f

o r a pa r o l cont r a c t , unenf o r c eabl e unde r the St a t u t e , i s not m ade b i n d i n g b y afu r t h e r

p ar 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 hort , w e f

i nd no e v i denc

e of over r e a chi ng or f r aud i n th i s r e co 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 the de f enda n t ’ s r e l i anc e uponth e a l le g e d o r a l p

r o mise to re d u c e the 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

ac r e d ito r ’ s g r a c e . T he de f enda n tar gues , i n t e r

a lia , th a t i tobt a i ned t h e lim ite d p artn e r s ’ a p p r o v a l o f th e s a l e o f th e ap artm 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 tha t t h e p lain t iff w o u l d

re d u c e its debt [ w h i ch w oul d r e s u l ti n a g r e a ter p a y m e n t t

o th e limi t e d p artne rs]. B u t th e
r ecord r eve a l s that the de f enda n ts ought s uch a ppr oval m any w e e k s bef o re the or a l s t a t e m ent s w e r e m ade. M oreover, the recor d i s clear on the poi

n tthat the r e zoni n g
w oul d re s u lt inafo r e c l o s u r e o f th e f ederal m o rt gages , ther

eby “ w i p i ng out ” t

h e l imi t e d p artne rs. Sum m a r y j udgment

ca nnot be gr ant ed i f ther 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 ak i n g ad 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 evidence i n f avor of the 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 arty a n d d i s c ar 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

actor 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, or u n c e rta i n t ya s to w h e t h e r m a t e ria l fa c t s ar e in di s put e , s u mmar y j udgment m u s tbe 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 ta lesser sum [32 % ] i n pay m ent of the 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 the 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 th 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 ag 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 tha t t

h e p lain t iff a g r e e d a s al

l ege d w oul d ava

i l the de f enda n t s noth i ng i n l i ght

of the pl a i n l angua ge of the 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 am 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 the cau se of act i o n on dem and no t es shal l be co mm enced w i t h i n t en (10) year s af

t e r the cau se of

act i o n i s accr

ued
. Acause of act

i o n on a dem and no t e , by st

a t u t e , accrues atthe 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 -two n o tes w e r e m ade m ore t han t en y ear s bef

ore January 14, 1997, the da

t e t he co m p l a i n tw a s f i l ed. N o th i ng mo 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 part i a l pay m ent , t w ent y s i x of the not e s ar e t im e - b arre 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 irfi 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 irfi e l dR e a ltyF u n d , L T D , (F a irfi 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 Ser v i c e s C o rpor 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, Fa irfi e l d(1 ) d e liv e r e d to C itiz ens F ederal B ank th e
o rig i n a l no t es execut e d byM 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 a2 5 % i n tere s t i n the 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 Feder a l

B ank w oul d hol d the not

e s as a g e n t fo r F a irfi e l da 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 ak e de

m and f o r pay m ent th e r e o f p rio r to A ugus t1, 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 tshal l m ake d e m and f

or paym ent : ” ( a )(b )(c ) O f th e c o n t in 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 the sal e by th e def enda n tof anot her as set

r e f e rr 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 tar gues that th 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 mitatio n s , i s not bi ndi ng on t

h e d efen d a n tb e c a u s e i tw 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 the cons ent

of th e d e b t o r to im

p a ir a d e b t o r ’ s ab ilityto in v o k e th e S t a t u t e o f L i mitatio n s . C ount e r i n g th is a r g u m e n t ,th

e p lain t iff in sists th a t t

h e d e f e n d a n tis alim

ite d p artn ersh i p w h o s e s o l e g e n e r a l p artn 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 irfi e l dR eal t y L T D i s t he sol e l i mi t ed p a rt 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 ar 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 the 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 sue i n t h i s cas e , a nd the A genc y A greem ent , w e r e execu t e d byU S A F a irfi e l dR e a ltyL T D , the s o l e lim ite d p artn e r o f the ge ner a l par t ner of the de f enda n t . E d w a r

d H e r zog w a s a n o f fi c e r f o r b o t h th e11

def enda n tand U S A Pr oper

t i e s , w h i c h w a s the pa

r ent com pany of the de f enda n t and , as st a t ed, the m anag i n g agen t . G i v e n these ci r cum s t

ances, w e r e j ectthe argum ent of t he d e f end ant
- app e l l ant that

the 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 th e def enda n t ’ s arg u m e n tap 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 that 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 hori t y to bi nd i tby t

he A genc y A g r e e m ent, on t he one

hand, but that U S A Pr oper

t i e s Fund, I nc. , had t

he a u thori t y to bi nd the 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 the ot

her
. M o r eove

r , the 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 filiat e ” and em

p h asiz e that

no de m and can be

m ade on the 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 the pr opert y . W e agree w i t h the C

hanc e l l o r that the 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 the 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 time l y file d
. T h e C hanc

e l l o r f u rt her r e s ponded t o the i s s ue of

the St a t u t e of L i mitatio n s b yhol d i ng that

the pa r t i e s agreed by a “pat t e r n of

condu c t t o modi f y t he not e s i n t o
asi 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 ce m ber 1995 w h i ch r

e co mmenced t h e runni ng of the St a t u t e .T he r

e co 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 tcons 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 mm on i n t e r

e stnot e and c

o mm on dat

e o f m a t u r ity
. P aym ent s we r e a l w a ys m ade

“ on the 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
. Ahos tof docum ent s tr e a tthe not e s as one d ebt ; i n aM ay 2 2 , 19 9 6 l e t t e r

t o i t s l i mi t ed p a rt ners , the d e f

end ant r e f

e r ences the 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 artia l p a y m e n t o f a d e b t is a n ac know l edgm

ent of the de b tand r a i s e s an i m p lie d pr o mi s e t

o pay the ba l anc e ow i ng. S e e , G r a v e s v. Sa w y e r , 588 S. W
. 2d 542 ( T enn.1979) ; F

arm ers & M erchan ts 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 th i nk the hol

der of th e not e s w as f r ee t o credi tthem 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 re co mm enc

ed t he r unni ng of the St a t u t e .

For the reas o n s di scuss ed, the 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 ella n tan d th e c ase i s rema n d e d for al l ap p rop r iate 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