Opinion
NO. 2016-CA-000360-MR
07-20-2018
A.W.I. LLC, A KENTUCKY LIMITED LIABILITY COMPANY APPELLANT v. MICHEL GRIMAL; DANIELE GRIMAL; GARRETT E. BALLARD; AND KENTEX OIL, INC. APPELLEES
BRIEF FOR APPELLANT: Thomas K. Hollon Beattyville, Kentucky BRIEF FOR APPELLEE: David A. Franklin Natalie Damron McCormick Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM LEE CIRCUIT COURT
HONORABLE MICHAEL DEAN, JUDGE
ACTION NO. 06-CI-00126 OPINION
REVERSING AND REMANDING
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BEFORE: CLAYTON, CHIEF JUDGE; D. LAMBERT AND THOMPSON, JUDGES. THOMPSON, JUDGE: A.W.I. LLC, a Kentucky Limited Liability Company, appeals from a judgment of the Lee Circuit Court dismissing its action filed against appellees, Michel Grimal, Daniele Grimal, Garrett E. Ballard, and Kentex Oil, Inc. (collectively the Grimals), to collect on a promissory note it purchased from Citizens Guaranty Bank. The issue presented is whether enforcement of the note is barred by the statute of limitations. We conclude that the statute of limitations commenced to run on the date the Grimals made a payment on the note and the action was timely filed.
Ballard was named as a defendant because he held a mortgage on property involved in the litigation. However, he did not file a responsive pleading or otherwise appear in the action.
On February 12, 1991, the Grimals, acting as individuals and on behalf of Kentex Oil, Inc., received a $200,000 loan from Citizens Guaranty Bank and executed a promissory note for that amount secured by a mortgage on real property and various oil and gas leases in Lee County and Madison County. In bold-print and capital letters on the first page, the note stated it was "DUE ON DEMAND." The first paragraph of the body of the note further provided:
ON DEMAND OF THE LENDER, for value received, the undersigned (sometimes called 'You' or 'Your'), jointly and severally promise to pay to the order of the LENDER, named above, at its main office or any branch office, the Principal Amount shown above, together with interest, at the annual interest rate checked below beginning on the Date of Note and continuing until paid in full.Again, using the "on demand" language, in bold-print and capital letters, the note stated: "THE UNPAID PRINCIPAL AMOUNT, AND ALL ACCRUED INTEREST THEREON, IS DUE AND PAYABLE ON DEMAND OF THE LENDER." However, the note then provided a payment schedule stating: "IF THE FULL AMOUNT IS NOT DEMANDED SOONER you promise to make the payment(s) as follows: (amount, frequency, and due date) 11 monthly payments of $2,422.90 beginning 03/12/91, continuing the same day of every month thereafter. 1 payment of $197,425.32 due 2/12/92." In a document styled "Leasehold Mortgage and Amendment and Modification to Mortgagors Assignment of Leases and Security Agreement Financing Statement," the maturity dates of the Lee County and Madison County mortgages were amended to February 12, 1992.
On February 14, 2006, Citizens Guaranty Bank sold its interest in the promissory note and mortgage to A.W.I. On August 24, 2006, A.W.I. filed a complaint against the Grimals in the Lee Circuit Court to collect on the promissory note.
According to an affidavit filed by John M. St. Clair, the then Chairman/CEO of the Citizens Guaranty Bank, the balance due on the note at the time of the transfer to A.W.I., including interest, was $225,577.70. The affidavit also indicated that the debt had not been resolved by an accord and satisfaction and remained outstanding.
Michel Grimal filed an affidavit stating that after reaching an agreement with Citizens Guaranty Bank in 1992, the Grimals sold their home in Richmond, Kentucky and, from the proceeds, paid Citizens Guaranty Bank between $85,000 and $90,000 to satisfy, in full, any balance due on the note. According to Grimal, once this occurred, the Grimals were never contacted again by Citizens Guaranty Bank or anyone else regarding the note until after it was transferred to A.W.I.
The Grimals moved to dismiss A.W.I.'s action claiming the note was a demand note and A.W.I.'s action accrued on February 12, 1991, and, therefore, the action filed on August 23, 2006, was barred by the statute of limitations. A.W.I. argued that while the promissory note stated it was "due on demand," it also contained provisions inconsistent with a demand note and the action on the note did not accrue until its due date, February 12, 1992. A.W.I. also argued that the Grimals made payment on the note on September 16, 1991, acknowledging payment of the debt that "reset" the statute of limitations to begin on that date.
The trial court dismissed the action ruling it was untimely filed. However, it did not find that the promissory note was a "true" demand note and did not address A.W.I.'s argument that the statute of limitations had been reset by the Grimals' payment on the note. A.W.I.'s motion to alter, amend or vacate the order was denied. A.W.I. appealed.
On December 11, 2009, this Court rendered an unpublished opinion in which we vacated and remanded the matter to the circuit court. A.W.I., LLC v. Grimal, 2008-CA-001972-MR, 2009 WL 4723144 (Ky.App. 2009) (unpublished). We held that while there was language in the note that it was a demand note, other provisions within the note rendered it ambiguous. Id. at 4. Therefore, we remanded with directions that the court consider extrinsic evidence as to "the intent of the parties when the note and any related amendments were originally prepared and as to any other pertinent facts relating to the question of whether the note is a demand note or one payable at a definite time." Id. Because we remanded for an evidentiary hearing as to whether the note is a demand note or one payable at a definite time, we did not address A.W.I.'s argument that the statute of limitations had been reset by a payment made by the Grimals on September 16, 1991. Id.
As directed by this Court, the circuit court held an evidentiary hearing. However, that hearing was not held until November 4, 2015, over twenty-four years after the note was executed. At that point, the Grimals did not have any records relating to their transactions with Citizens Guaranty Bank and Mr. St.Clair, who was involved in the note transaction on behalf of the Bank, had passed away. Consequently, proving the intent of the parties when the note was executed or when the Grimals made a partial payment on the note on September 16, 1991, as alleged by A.W.I., was problematic.
A.W.I. called as its only witness Mike Wilson, the current President of Citizens Guaranty Bank. Wilson was not a Bank employee when the note was executed. Based on the Bank's records, Wilson testified that the Grimals made a payment on the note on August 24, 1991, in the amount of $61,674.28 applied to the principal and $8,701.92 applied to interest and another on September 16, 1991, in the amount of $18,594.72 with $17,539.72 applied to the principal and $1,055 applied to interest. He testified that the payment on the note in 1991 appeared to be from the sale of the Richmond residence. However, he had no personal knowledge of what the Grimals or the then President of the Bank discussed or their intent.
On cross-examination, Wilson was questioned regarding the language used in the note. He testified as follows:
Question: Isn't it true, even in an honest to God demand note, there has to be some thought of alternative payment would there not? Or otherwise you would have to repay the money the day you borrowed it?
Answer: That's correct.
Question: So any demand note has to have alternative payment?
Answer: Hmmm. Yes, it would have to have a payment date.
Question: You can have a demand note and still have payment terms? In fact, you have to have payment terms?
Answer: Correct.Wilson's testimony was the only evidence presented.
And you know, in my experience when I was a bank examiner, back in that time, a lot of people utilized demand notes. They've got away from that now, and it's gone more specific, but back in those days the demand note was utilized a lot.
The circuit court again dismissed the complaint. It noted that there was no extrinsic evidence introduced that it was the Grimals' and Citizens Guaranty Bank's intent that the note was payable at a definite time and concluded it was a demand note. A.W.I. filed a motion to alter, amend or vacate the judgment and requested that the circuit court rule whether the Grimals' payment on the note constituted a new promise to pay thereby extending the statute of limitations. The circuit court denied the motion, ruling there was no proof offered by A.W.I. that an actual payment was made by the Grimals that would reset the statute of limitations. A.W.I. appealed.
On appeal, neither party argues that the six-year statute of limitations contained in Kentucky Revised Statutes (KRS) 355.3-118 enacted after the promissory note was executed, is applicable. Consequently, we decline to address that question.
In Cecilian Bank v. Sarver, 2002-CA-000076-MR, 2003 WL 23005721 (Ky.App. 2003) (unpublished), this Court ruled that KRS 355.3-118 was not retroactive and that the limitation of actions for suit on a note executed prior to its enactment is fifteen years. --------
The parties agree that the statute of limitations for enforcement of the promissory note is fifteen years under KRS 413.090(2). The question is when A.W.I.'s cause of action accrued. As this Court held in its prior decision, the answer depends on whether the note is a demand note or one payable at a definite time.
If the note is a demand note, the cause of action accrued on February 12, 1991, the date the note was executed. Gould v. Bank of Independence, 264 Ky. 511, 94 S.W.2d 991, 992 (1936). However, "a note in which the date of maturity is fixed at a specified future time is not due until the date of maturity and the statute of limitations does not begin to run until after that date." Id. at 993.
KRS 355.3-108(1) provides: "A promise or order is 'payable on demand' if it: (a) [s]tates that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder; or (b) [d]oes not state any time of payment." As noted in Corbin Deposit Bank & Trust Co. v. Mullins Enterprises, Inc., 641 S.W.2d 760, 761 (Ky.App. 1982):
Generally, an instrument fits within or without the terms of the above statute, but some cases, such as this one, involve the matter of construction to establish whether or not the instrument is payable on demand. Instruments stated to be payable on demand have been held to be so payable even though they contained provisions for payment of interest periodically or for payment in stated or indefinite installments and even though they also contained acceleration clauses operative upon failure to make the prescribed payments. However, a note payable
"on demand" that also provided for the payment of interest and stated monthly payments has been held to be payable in installments and not on demand.
In its second appeal, A.W.I. again argues that based on the language of the note, it is payable at a definite time and that its cause of action did not accrue until February 12, 1992, the date on which it was due. However, its argument ignores this Court's prior opinion wherein we held that the note is ambiguous because it contains terms indicating it is a demand note but also contains terms indicating it is payable at a definite time. A.W.I., 2009 WL 4723144 at 4.
Whether correct or incorrect, that ruling is binding in this appeal. Under the law-of-the-case doctrine, "if an appellate court has passed on a legal question and remanded the cause to the court below for further proceedings, the legal questions thus determined by the appellate court will not be differently determined on a subsequent appeal in the same case." Inman v. Inman, 648 S.W.2d 847, 849 (Ky. 1982).
The trial court held the required hearing but there was no evidence produced concerning the parties' intent. The only witness, Wilson, admitted he had no knowledge of that intent. Because no evidence was introduced as to the intent of the parties at the time the note was executed, we conclude the trial court properly construed the note's terms "most strongly against" A.W.I. and concluded it was a demand note. Corbin Deposit & Trust Co., 641 S.W.2d at 762.
A.W.I. maintains that even if the note is a demand note, the accrual date was reset when the Grimals made payments on the note. "A payment on a note is a sufficient acknowledgment of a debt to stop the running of the statute up to that time, and the period of limitation will then be computed from the date of payment." Richardson's Adm'r v. Morgan, 233 Ky. 540, 26 S.W.2d 32, 33 (1930). While the mere credit on a note without evidence that the credit is the result of a payment for that amount by the debtor is insufficient to reset the statute of limitations, id., the rule is established in this Commonwealth:
[A] partial payment on an obligation made before it is barred by limitation is prima facie an acknowledgment that the residue is unpaid and of a continuing liability therefor, and suspends the operation of the statute between the accrual of the cause of action and the date of that payment. Or in other words, a payment starts the running of the statute of limitation from the date of payment. The same principles govern where the obligation is secured by a lien on real property.City of Louisa v. Horton, 263 Ky. 739, 93 S.W.2d 620, 623 (1935) (citations omitted).
The trial court made the factual finding there was no evidence that an actual payment was made by the Grimals on the note in September 1991. We may not reverse that finding unless it was clearly erroneous. Kentucky Rules of Civil Procedure 52.01. "A finding of fact is clearly erroneous when it is not supported by substantial evidence." Stanford Health & Rehab. Ctr. v. Brock, 334 S.W.3d 883, 884 (Ky. App. 2010). In this case, the trial court's finding was clearly erroneous.
Wilson's uncontradicted testimony based on Citizens Guaranty Bank's records was that the last payment on the note was made on September 16, 1991. Michel Grimal acknowledged in his affidavit that a payment of between $85,000 and $90,000 was made "sometime in 1992." Wilson's testimony and Michel Grimal's acknowledgement he made a payment on the note was sufficient to establish that the Grimals paid the amount on the note reflected in Citizens Guaranty Bank's records. Consequently, the action filed on August 24, 2006, was filed within the fifteen-year statute of limitations.
Our opinion is limited to the statute of limitations issue. The Grimals are not precluded from arguing any applicable defenses to enforcement of the promissory note.
For the reasons stated, the order of the Lee Circuit Court is reversed, and the case remanded for further proceedings.
ALL CONCUR. BRIEF FOR APPELLANT: Thomas K. Hollon
Beattyville, Kentucky BRIEF FOR APPELLEE: David A. Franklin
Natalie Damron McCormick
Lexington, Kentucky