Earlene Gorzell v. Julie Tillman ( 2010 )

Opinion filed September 9, 2010
In The
Eleventh Court of Appeals
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No. 11-09-00110-CV
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EARLENE GORZELL, Appellant
V.
JULIE TILLMAN, Appellee
On Appeal from the 342nd District Court
Tarrant County, Texas
Trial Court Cause No. 342-222894-07
MEMORANDUM OPINION
This is a suit to collect a promissory note executed in connection with the sale of a
business. Earlene Gorzell sued Julie Tillman to enforce the note, and Tillman asserted
limitations. After a bench trial, the trial court found that Gorzell’s claim was barred by
limitations and entered a take-nothing judgment. We reverse and remand.
I. Background Facts
Gorzell sold a rental property management business to Tillman for $84,000. Tillman
paid $30,000 in cash and executed a promissory note for the remaining $54,000. The parties also
executed an addendum to the promissory note in which they agreed that, if any of the property
owners for whom Gorzell had been providing management services did not agree in writing to
the assignment of their contract to Tillman, the promissory note would be reduced by twice the
amount of the client’s annual management fee. One property owner decided to sell rather than to
continue renting and, therefore, did not agree to assign. Tillman was given a credit for this
account, and her indebtedness was reduced to $50,760. The parties closed in February 2002, and
Tillman operated the business for the balance of the year. The promissory note required monthly
payments beginning in April, but she made only four payments. Tillman sold the business to a
third party and moved to Tennessee in January 2003.
II. Issues
Gorzell challenges the judgment with two issues, contending that the trial court applied
the wrong statute of limitations or, alternatively, that it failed to toll limitations because of
Tillman’s absence from the state.
III. Discussion
Did the Trial Court Apply the Correct Statute of Limitations?
The trial court ruled at the conclusion of trial that Gorzell’s claims were barred by
limitations. The court did not announce which limitations statute it applied, but the judgment
reflects that it utilized a four-year limitations period. Gorzell argues that this was in error
because the six-year statute of limitations provided by TEX. BUS. & COM. CODE ANN. § 3.118(a)
(Vernon 2002) was applicable. This statute provides:
(a) Except as provided in Subsection (e),1 an action to enforce the obligation of a
party to pay a note payable at a definite time must be commenced within six
years after the due date or dates stated in the note or, if a due date is
accelerated, within six years after the accelerated due date.
Tillman responds that Section 3.118(a) is inapplicable because the note was not payable at a
definite time. The note unambiguously states that it was payable in ninety-six monthly
installments beginning April 1, 2002, and continuing the first day of each succeeding month until
paid in full. Texas courts have found agreements such as this are notes payable at a definite ime.
See, e.g., Parker v. Dodge, 98 S.W.3d 297, 300 (Tex. App.—Houston [1st Dist.] 2003, no pet.).
To overcome this, Tillman points to the following language in the promissory note addendum:
The parties named above hereby understand and agree that the balance
owing on that First Vendor’s Lien Note payable by Buyer to Seller and executed
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Subsection (e) applies to actions to enforce the obligation of a party to a certificate of deposit.
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on February 25th, 2002, may be reduced in the event that the owner of any of the
35 properties that comprise the business known as Yellow Rose Properties on the
day of closing declines on or before March 15, 2002 to have said property remain
under management with Julie Tillman dba Forza Properties.
In the event that an owner does not transfer agreement in writing, on or
before March 15, 2002, to allow Julie Tillman to continue to manage his property,
the balance on that Vendor’s Lien Note shall be reduced by an amount equal to
two times the annual management fee which was previously being paid to Earlene
Mahan dba Yellow Rose Properties. In such a case, the Buyer will receive credit,
as if a payment had been made, against said Note, equal to the amount stated
herein. Such credit will apply first to the end of the Note.
Tillman contends this language made her obligation conditional, and she makes much of the fact
that Gorzell referred to an amortization schedule during her testimony, that her counsel used this
schedule to document the amount owed, and that the schedule showed an original principal
balance of $50,760 rather than the note’s $54,000. Tillman contends that, because Gorzell could
not calculate her indebtedness without looking beyond the four corners of the note, it was no
longer payable at a definite time. Tillman’s argument confuses when payment was due with the
amount due and, if accepted, would essentially make Section 3.118(a) inapplicable to any
promissory note requiring scheduled payments because it is impossible to calculate the debtor’s
obligation without also knowing what payments have been made and whether any unpaid late
charges or past due interest have accrued. The addendum provided a potential credit against
Tillman’s indebtedness that the parties agreed would be treated as a note payment. The fact that
the amortization schedule listed the original principal balance as $50,760 merely confirms that
the addendum operated as intended.
A second agreement can make a promissory note a conditional obligation. See, e.g., FFP
Mktg. Co. v. Long Lane Master Trust IV, 169 S.W.3d 402, 408-09 (Tex. App.—Fort Worth
2005, no pet.). But, in that instance, the note referenced and incorporated a second agreement,
thus making it necessary to examine the second agreement to determine the debtor’s obligation.
Tillman’s note contains no such reference or incorporation. When the parties to a promissory
note execute a separate agreement that modifies the debtor’s obligation to pay, the debtor has a
defense to the original obligation. TEX. BUS. & COM. CODE ANN. § 3.117 (Vernon 2002). But
the presence of a defense does not make the obligation conditional. Id. cmt. 1 (debtor’s defense
against creditor would not defeat a subsequent holder in due course).
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Tillman also contends that her indebtedness was conditional because of the reference in
the note to collateral. Section 3.118(a) makes no distinction between secured and unsecured
promissory notes. Nor does the presence of collateral make a debtor’s obligation conditional.
See TEX. BUS. & COM. CODE ANN. § 3.106(b) (Vernon Supp. 2009) (a promise is not made
conditional by reference to another record for a statement of rights with respect to collateral or
because payment is limited to resort to a particular fund or source). Tillman next refers to what
she describes as conflicting testimony between Gorzell and her counsel on what occurred at
closing, and she contends that Gorzell did not give her the client contracts she was promised. If
Gorzell failed to comply with any provision of the purchase and sale agreement, then Tillman
has a defense but that defense does not make Section 3.118(a) inapplicable.
Tillman’s promissory note was payable at a definite time. Consequently, Section 3.118(a)
applied. Tillman made her last payment in July 2002. Her first missed payment was due
August Reynolds v. State, 204 S.W.3d 386, 390-91 (Tex. Crim. App. 2006); 1, 2002. This suit
was filed March 5, 2007. Because Gorzell’s suit was subject to a six-year statute of limitations,
the trial court erred when it found that limitations barred her claim. Issue One is sustained. It is
unnecessary to consider Gorzell’s second issue.
IV. Conclusion
The judgment of the trial court is reversed, and this cause is remanded for a new trial.
RICK STRANGE
JUSTICE
September 9, 2010
Panel consists of: Wright, C.J.,
McCall, J., and Strange, J.
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