J. Howard Gregg v. Jack Johnson ( 2001 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 8, 2001 Session
J. HOWARD GREGG v. JACK JOHNSON
Appeal from the Chancery Court for Bradley County
No. 99-118 Jerri S. Bryant, Chancellor
FILED AUGUST 13, 2001
No. E2000-02685-COA-R3-CV
J. Howard Gregg (“Plaintiff”), sued his former business partner, Jack Johnson (“Defendant”),
essentially alleging that Defendant breached an agreement to pay a debt originally incurred by their
former partnership, Jack Johnson Motors. Plaintiff also alleged that Defendant owed him money as
part of their partnership (“Partnership”) dissolution agreement. Neither the Partnership agreement
nor the dissolution agreement was written. Defendant raises as defenses the statute of limitations
and the Statute of Frauds. The Trial Court held in favor of Plaintiff. Defendant appeals. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed.
D. MICHAEL SWINEY , J., delivered the opinion of the court, in which HERSCHEL P. FRANKS, J., and
CHARLES D. SUSANO, JR., J., joined.
Ashley L. Ownby, Cleveland, Tennessee, for the Appellant, Jack Johnson.
Roger E. Jenne, Cleveland, Tennessee, for the Appellee, J. Howard Gregg.
OPINION
Background
In February 1983, Plaintiff and Defendant entered into the Partnership to buy and sell
vehicles under the name of Jack Johnson Motors. The Partnership agreement was unwritten.
Defendant had been in the used car sales business since approximately 1963. Plaintiff had been in
business for himself in other areas for quite some time.
The parties stipulated that Plaintiff obtained a line of credit in his name from
Merchant’s Bank (“Line of Credit”) when they formed the Partnership in February 1983. Plaintiff
testified he obtained the Line of Credit because he had better credit and Defendant did not have the
money. The parties stipulated at trial that they used the Line of Credit to purchase vehicles for the
Partnership and that Partnership funds were used to make the payments toward this debt. In
addition, the proof contained in the record shows that the Partnership’s 1987 Balance Sheet
(“Balance Sheet”) lists the Line of Credit as a “Long Term Liabilit[y]” of the Partnership. The
record also contains the Partnership’s Ledger Sheet (“Ledger Sheet”) which lists the Line of Credit
with a beginning balance of $425,000; the amount of payments made toward the Line of Credit from
1987 through December 1989; and the ending balance in 1989 of $150,000. Moreover, the parties
stipulated that Defendant and/or the Partnership claimed as a deduction for federal income tax
purposes the interest paid on the Line of Credit. Defendant, however, disputes that this was a
Partnership debt and points to the fact that the Line of Credit was in Plaintiff’s name.
The parties operated the Partnership from 1983 until 1989 when they agreed to a
dissolution of the Partnership. The parties agreed that Plaintiff’s portion of the Partnership assets
totaled approximately $150,000. Plaintiff was given $50,000 in inventory and $50,000 in cash, with
the remaining $50,000 (“Dissolution Debt”) to be paid by Defendant over time. As in the case of
the parties’ Partnership agreement, their dissolution agreement was not written.
At this point, the parties’ versions of the facts differ sharply. Plaintiff claims that
Defendant agreed to pay the remaining $150,000 balance owed on the Line of Credit and after the
Line of Credit was paid entirely, Defendant then was to pay Plaintiff the outstanding $50,000
Dissolution Debt. By contrast, Defendant does not dispute that he owed Plaintiff the $50,000
Dissolution Debt, but he claims that his payments on the Line of Credit debt were credited to the
$50,000 Dissolution Debt. Defendant disputes Plaintiff’s contention that he agreed to pay the Line
of Credit and then the Dissolution Debt. The parties, however, did stipulate at trial that Defendant
continued to make payments toward the Line of Credit debt from the date of dissolution in December
1989, until October 1992.
In October 1992, the successor to Merchants Bank, SunTrust Bank, requested that
Plaintiff liquidate the Line of Credit debt. Plaintiff then obtained an installment loan from another
lender (“Installment Loan”), to pay in full the Line of Credit debt of approximately $117,040.1
Around the time that the Installment Loan was obtained, in an apparent bank error, a personal loan
to Plaintiff in the amount of $20,000 was placed on the Line of Credit. According to Plaintiff, the
parties discussed this issue and agreed that the Dissolution Debt of $50,000 would be off-set by
$20,000 to total $30,000 with Defendant to pay the remaining Line of Credit debt which now
1
For simplicity’s sake, we use round numbers throughout this opinion.
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included Plaintiff’s $20,000 personal loan. At trial, Plaintiff testified that the Installment Loan debt
was not to be paid within a year but rather was to be paid over time.
From November 1992 through May 1996, Defendant made the monthly payments
of $2,200 on the Installment Loan by giving a check to Plaintiff who, in turn, endorsed the check to
make the Installment Loan payment. As in the case of the Line of Credit debt, Defendant claimed
as a deduction on his federal income tax the interest he paid on the Installment Loan. Defendant
testified that after May 1996, he stopped making payments on the Installment Loan because he
believed that he had paid enough toward the Dissolution Debt owed to Plaintiff. Plaintiff, on the
other hand, testified that Defendant expressly acknowledged that he owed the debt on the Installment
Loan but that he was having financial difficulties. Although not contained in their stipulations, it
is not disputed that after May 1996, Defendant made three more payments on the Installment Loan.2
The Trial Court found that Defendant made his last payment on the Installment Loan in April 1998.
Thereafter, in May 1998, Plaintiff paid off the Installment Loan balance of $47,890.
On April 29, 1999, Plaintiff filed his Complaint, alleging that Defendant owed him
$30,000 on the Dissolution Debt plus the $47,890 Plaintiff paid on the Installment Loan. In his
Answer, with respect to the Dissolution Debt, Defendant raised the defense of statute of limitations.
Defendant also alleged in his Answer that any agreement that he made with Plaintiff to pay the Line
of Credit and Installment Loan (collectively “Partnership Debts”) violates the Statute of Frauds and
is, therefore, unenforceable.
After a bench trial, the Trial Court awarded judgment to Plaintiff in the amount of
$87,860, which included money owed for the Dissolution Debt and the Installment Loan debt, plus
pre-judgment interest. Defendant then filed a post-trial Motion to Make Additional Findings of Fact,
to Alter or Amend the Judgment, and to Stay Execution of the Judgment. Thereafter, the Trial Court
made additional findings of fact which included the following:
1) After the parties’ dissolution, Jack Johnson Motors continued to
make all of the payments on the Line of Credit because the money
had been used for the Partnership;
2) Defendant continued to claim the Line of Credit’s interest
payments as a deduction on his federal income tax return;
3) After the Line of Credit was converted to an Installment Loan,
from November 1992 through May 1996, Defendant paid the monthly
payment of $2,200 “in accordance with the parties [sic] agreement”;
2
Plaintiff testified at trial that Defendant made three payments on the Installment Loan after May 1996, while
Defendant testified that Plaintiff asked him for money for various reasons, not including the Installment Loan.
Defendant testified that he gave Plaintiff approximately $4,500. In his brief, however, Defendant stated that he made
payments on the Installment Loan after May 1996, consistent with Plaintiff’s trial testimony.
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4) After May 1996, Defendant made three more payments on the
Installment Loan totaling $4,500, and the last payment was made on
April 16, 1998; and
5) The Line of Credit belonged to the Partnership and was therefore,
“the Defendant’s debt, as well as the Plaintiff’s debt.”
The Trial Court also held that the parties’ agreement that Defendant would pay the Line of Credit
was not within the Statute of Frauds because the debt was a Partnership debt and “not a promise to
pay the debt of another.” The Trial Court further held that even if the Statute of Frauds was
applicable, Defendant was estopped from relying on the Statute because he tendered partial
performance of his duty under the parties’ agreement. An Agreed Order granting Defendant’s
motion to stay was entered. Defendant appeals. We affirm.
Discussion
On appeal and although not stated exactly as such, Defendant raises the following
issues: 1) Plaintiff’s claim regarding the Dissolution Debt of $30,000 is barred by the applicable
statute of limitations of six years; 2) Plaintiff’s claim regarding the Partnership Debts violates the
Statute of Frauds; 3) the doctrine of partial performance does not apply to this situation so as to take
the parties’ agreement regarding the Partnership Debts out of the Statute of Frauds; and 4) the Trial
Court erred in holding Defendant liable for the balance of the Installment Loan because it was not
a debt of the Partnership. Plaintiff raises no additional issues on appeal.
Our review is de novo upon the record, accompanied by a presumption of correctness
of the findings of fact of the Trial Court, unless the preponderance of the evidence is otherwise.
Tenn. Rule App. P. 13(d); Alexander v. Inman, 974 S.W.2d 689, 692 (Tenn. 1998). A Trial Court’s
conclusions of law are subject to a de novo review with no presumption of correctness. Ganzevoort
v. Russell, 949 S.W.2d 293, 296 (Tenn. 1997).
We first address Defendant’s argument regarding the Dissolution Debt of $30,000.
Defendant contends that Plaintiff’s claim against him regarding the Dissolution Debt is barred by
the applicable statute of limitations. Defendant contends that the applicable statute of limitations
period is six years under Tenn. Code Ann. § 28-3-109(a)(3).3 Defendant argues that the parties did
not set a date that the Dissolution Debt was due, and as a result, the limitations period accrued at the
time the promise was made. See 51 Am.Jur.2d Limitations of Actions § 164 (2000) (stating that in
3
Tenn. C ode An n. § 28-3 -109(a) provide s, in pertinen t part:
The followin g actions shall be com menced within six (6) years after the cause
of action accrued:
(3) Actions on contracts not otherwise expressly provided for.
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an oral agreement to pay money, where no date for payment was set, the statute of limitations may
begin to run at the time that the promise is made).
Although we agree that the applicable limitations period is six years, we disagree, as
did the Trial Court, that the parties did not set a time that the Dissolution Debt was due. It is
apparent from the Trial Court’s Judgment in favor of Plaintiff and its rejection of this defense that
it found Plaintiff to be more credible than Defendant. The substance of the parties’ oral dissolution
agreement is provided by their testimony. Plaintiff testified that at the time of the parties’
dissolution in 1989, they agreed that Defendant first would pay the Line of Credit debt and then pay
Plaintiff the $50,000 Dissolution Debt. Defendant’s testimony directly conflicts with Plaintiff’s
account of the parties’ agreement.
“Unlike this Court, the [T]rial [C]ourt observed the manner and demeanor of the
witnesses and was in the best position to evaluate their credibility.” Union Planters Nat’l Bank v.
Island Mgmt. Auth., Inc., 43 S.W.3d 498, 502 (Tenn. Ct. App. 2000). The Trial Court’s
determinations regarding credibility are accorded deference by this Court. Id.; Davis v. Liberty
Mutual Ins. Co., 38 S.W.3d 560, 563 (Tenn. 2001). “‘[A]ppellate courts will not re-evaluate a trial
judge’s assessment of witness credibility absent clear and convincing evidence to the contrary.’”
Wells v. Tennessee Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999).
The evidence does not preponderate against the Trial Court’s finding that Plaintiff’s
version of the dissolution agreement is the more credible, and, therefore, the Dissolution Debt was
not due until Defendant completely paid the Partnership Debts. The statute of limitations never was
triggered since Defendant never completely paid the Partnership Debts. Accordingly, we hold that
the Trial Court did not err in finding that the statute of limitations had not expired for Plaintiff’s
claim regarding the Dissolution Debt.
We now address Defendant’s arguments related to the Partnership Debts. Defendant
contends that any oral agreement by him to pay the Partnership Debts is unenforceable under the
Statute of Frauds. The Statute of Frauds provides, in pertinent part, the following:
(a) No action shall be brought: . . .
(2) To charge the defendant upon any special promise to answer for
the debt, default, or miscarriage of another person;
(5) Upon any agreement or contract which is not to be performed
within the space of one (1) year from the making of the agreement or
contract;
unless the promise or agreement, upon which such action shall be
brought, or some memorandum or note thereof, shall be in writing,
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and signed by the party to be charged therewith, or some other
personal lawfully authorized by such party.
Tenn. Code Ann. § 29-2-101.
The Statute of Frauds requires written evidence of certain types of contracts before
those contracts can be found enforceable. GRW Enter., Inc. v. Davis, 797 S.W.2d 606, 611 (Tenn.
Ct. App. 1990). This Court, in examining the intent behind the Statute of Frauds has held:
Its purpose is to prevent frauds based upon oral testimony and to
deter the formation of contracts based upon loose statements or
innuendoes long after witnesses have become unavailable or when
memories of the precise agreement have been dimmed by the passage
of time.
Price v. Mercury Supply Co., Inc., 682 S.W.2d 924, 932 (Tenn. Ct. App. 1984). The application,
however, of the Statute of Frauds is not without limits, and courts should not allow a person to use
the Statute “to avoid contracts or to ‘grant a privilege to a person to refuse to perform what he has
agreed to do.’” GRW Enter., Inc. v. Davis, 797 S.W.2d at 611 (quoting Cobble v. Langford, 230
S.W.2d 194, 196 (Tenn. 1950)); see also Jarrett v. Epperly, 896 F.2d 1013, 1018 (6th Cir. 1990)
(holding that “under Tennessee law, a wrongdoer is not permitted to rely on the Statute of Frauds
defense”).
Defendant contends that any agreement he made to pay the Partnership Debts is
unenforceable because it violates the Statute of Frauds since it is a promise to pay the debt of another
person. See Tenn. Code Ann. § 29-2-101(2). The Trial Court found this agreement to be outside
of the Statute of Frauds because the Line of Credit debt was the Partnership’s and, therefore, the
debt of Defendant and Plaintiff. Although Defendant argues that any agreement he made to pay the
Line of Credit and the Installment Loan violates the Statute, Defendant’s argument primarily
involves the Installment Loan. Defendant argues that the Trial Court’s findings did not address the
Installment Loan taken out by Plaintiff in 1992. Defendant also argues that the Line of Credit was
paid in full when Plaintiff obtained the Installment Loan and also that the Installment Loan is
actually a separate debt from the Line of Credit, and , therefore, not a Partnership debt. Moreover,
Defendant points to Plaintiff’s testimony that he listed the Installment Loan on his financial
statement as a debt.
After careful consideration of the facts and circumstances contained in the record,
we hold that the evidence does not preponderate against the Trial Court’s determination that the Line
of Credit is a Partnership debt. We find no error in the Trial Court’s holding that Defendant is liable
for the amount paid by Plaintiff on the Installment Loan. See Ganzevoort v. Russell, 949 S.W.2d
at 296; Tenn. Rule App. P. 13(d); Alexander v. Inman, 974 S.W.2d at 692. The parties stipulated
that in February 1983, when the parties entered their Partnership agreement, Plaintiff obtained a Line
of Credit. It is not disputed that the proceeds from the Line of Credit were to be and were used in
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the operation of the Partnership’s business, Jack Johnson Motors, and to purchase inventory for the
Partnership. See Tenn. Code Ann. § 61-1-107(a) – (b). The parties’ stipulations included that while
they were partners, Jack Johnson Motors made all payments on the Line of Credit and that after the
dissolution of the Partnership in 1989, Defendant continued to make payments on the Line of Credit.
Further, the record shows that the Partnership’s Balance Sheet and Ledger Sheet both referred to the
Line of Credit as its liability. Moreover, the parties stipulated that Defendant and/or Jack Johnson
Motors claimed the interest paid on both the Line of Credit and the Installment Loan for federal
income tax purposes.
In addition, the proof in the record shows that in 1992, the Line of Credit was paid
off with the proceeds of the Installment Loan only at the request of the successor of Merchant’s
Bank, SunTrust. As found by the Trial Court, and as stipulated by the parties, when the Line of
Credit was converted to the Installment Loan, Defendant continued to make regular monthly
payments toward the debt until 1996. Plaintiff testified that thereafter, Defendant made three more
payments on the Installment Loan until 1998, and the Trial Court incorporated this into its findings
of fact.
Since the Trial Court found Defendant liable for the balance on the Installment Loan,
it clearly treated the Line of Credit debt and the Installment Loan as the same debt belonging to the
Partnership. Likewise, Defendant treated this debt as the same obligation as well since Defendant
continued making regular payments for four years after the debt was converted. Accordingly, we
hold that the evidence does not preponderate against the Trial Court’s finding that the Line of Credit
debt was a Partnership debt. Tenn. Rule App. P. 13(d); Alexander v. Inman, 974 S.W.2d at 692. We
find no error in the Trial Court’s determination that the parties’ agreement that Defendant would pay
the Line of Credit debt was not an agreement to pay the debt of another, and, therefore, does not fall
within the Statute of Frauds. See Tenn. Code Ann. 29-2-101(a)(2); Ganzevoort v. Russell, 949
S.W.2d at 296.
Defendant also argues on appeal that any agreement he made with Plaintiff to pay the
Installment Loan violates the Statute of Frauds because it was not to be performed within one year.
See Tenn. Code Ann. § 29-2-101(5).4 We disagree. This Court has held that this particular provision
of the Statute of Frauds is “generally construed very narrowly by the courts . . . because courts
generally attempt to give effect to contracts rather than defeating them.” Price v. Mercury Supply
Co., Inc., 682 S.W.2d at 932. In interpreting this particular provision of the Statute, this Court held:
“The question is not what the probable, expected, or actual performance of
the contract may be, but whether, according to the reasonable interpretation
of its terms, it requires that it should not be performed within the year.
Unless the court, looking at the contract in view of the surroundings, can say
4
At the trial level, it does not appear from the record that Defendant specifically raised this particular defense,
found at Tenn. Cod e Ann. § 29 -2-101(5), bu t did raise the general defe nse of Statute of Frauds in his Ans wer and at trial.
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that in no reasonable probability can such agreement be performed within the
year, it is its duty to uphold the contract.
********
[I]f a contract, when made, was in reality capable of full and bona fide
performance with [sic] the year, it is to be considered as not within the
statute.”
Id. (quoting Boutwell v. Lewis Bros. Lumber Co., 182 S.W.2d 1, 3 (Tenn. Ct. App. 1944); Anderson-
Gregory Co. v. Lea, 370 S.W.2d 934, 936 (Tenn. Ct. App. 1963)).
In this case, the proof in the record does not show that both debts were not capable
of being paid in full within one year. Stated conversely, it was possible for the debts to be paid
within one year. We acknowledge Plaintiff’s testimony that the Line of Credit debt was to be paid
back over time, instead of one year. The proof in the record does not show, however, that there was
no “‘reasonable probability . . .’” that this agreement could not be performed within one year. Id.(quoting Boutwell v. Lewis Bros. Lumber Co., 182 S.W.2d at 3). There is no proof in the record on
appeal that the lenders would have refused full payment within the first year after the parties’
agreement. Accordingly, we hold that the Trial Court correctly held that Defendant’s agreement to
pay the Partnership Debts does not violate the Statute of Frauds, and is, therefore, enforceable.
Nevertheless, if the parties’ agreement does violate the Statute of Frauds, Defendant’s
partial performance takes the agreement out of the Statute. “Tennessee courts . . . recognize a part
performance exception to the Statute which is applicable to oral contracts other than for the sale of
land.” Schnider v . Carlisle Corp., No. W2000-01695-COA-R3-CV, 2001 WL 400387, at * 3 (Tenn.
Ct. App. Apr. 19, 2001). In explaining the purpose and application of this exception to the Statute
of Frauds, this Court held:
This doctrine of partial performance to take the verbal contract out of
the operation of the Statute of Frauds is purely an equitable doctrine
and is a judicial interpretation of the acts of the parties to prevent
frauds. . . . “The plaintiff must be able to show such acts and conduct
of the defendant as the court would hold to amount to a representation
that he proposed to stand by his agreement and not avail himself to
the statute to escape its performance; and also that the plaintiff, in
reliance on this representation, has proceeded, either in performance
or pursuance of his contract, so far to alter his position as to incur an
unjust and unconscious injury and loss, in case the defendant is
permitted after all to rely upon the statutory defense. . . .”
Calabro v. Calabro, 15 S.W.3d 873, 878 (Tenn. Ct. App. 2000) (quoting Blasingame v. American
Materials, Inc., 654 S.W.2d 659, 663 (Tenn. 1983)).
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The Trial Court found that Defendant partially performed his agreement to pay the
Partnership Debts after the 1989 Partnership dissolution. Consistently from 1989 until 1996, and
sporadically from 1996 until 1998, Defendant made payments toward the Partnership Debts totaling
$96,900, leaving only a balance of $47,890. This evidence is strong support that Defendant intended
to perform his agreement to pay the Partnership Debts after the parties’ dissolution. See id. The
evidence does not preponderate against this finding by the Trial Court.
Moreover, we disagree with Defendant’s argument on appeal that the doctrine of part
performance does not apply because Plaintiff did not place himself in a detrimental position by
relying upon Defendant’s agreement to pay the Partnership Debts. The proof in the record shows
that over a number of years and long after the Partnership ended, Plaintiff justifiably relied upon
Defendant to pay a debt incurred in the first place for their Partnership’s business. At the time of
the Partnership dissolution, Defendant kept most of the inventory which had been purchased with
the Line of Credit proceeds. Partial performance by both parties occurred. Further, once Defendant
stopped making regular payments on the Installment Loan, Plaintiff had to make the monthly
payments of $2,200 from his own funds, and although the proof in the record regarding the terms
of the Installment Loan is minimal, it is likely that if Plaintiff did not make the regular payments,
he risked penalties and interest accumulation. Accordingly, we hold that the Trial Court correctly
held that even if the agreement was within the Statute of Frauds, the doctrine of partial performance
rendered it enforceable.
Defendant’s final argument on appeal regarding the Partnership Debts is that if the
debt belonged to the Partnership, then Plaintiff is equally liable for the debt. In light of our findings
that the evidence does not preponderate against the Trial Court’s determination that Defendant
agreed to pay the Partnership debts, the principle of law relied upon by Defendant is not applicable
to the facts found by the Trial Court.
CONCLUSION
The judgment of the Trial Court is affirmed and this cause is remanded to the Trial
Court for such further proceedings as may be required, if any, consistent with this Opinion, and for
collection of the costs below. The costs on appeal are assessed against the Appellant, Jack Johnson,
and his surety.
___________________________________
D. MICHAEL SWINEY, JUDGE
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