Opinion
No. 05-02-00705-CV.
Opinion issued August 28, 2003.
Appeal from the 401st District Court, Collin County, Texas, Trial Court Cause No. 401-2042-01.
REVERSED and REMANDED.
Before Justices WRIGHT, BRIDGES, and O'NEILL.
MEMORANDUM OPINION
David L. McGoodwin appeals the trial court's order granting Deborah McGoodwin's motion for summary judgment and denying David's motion for summary judgment. In two issues, David argues the trial court erred in granting Deborah's motion for summary judgment and refusing to grant David's cross-motion for summary judgment. We reverse the trial court's judgment and remand this cause for further proceedings.
In March 1989, after eleven years of marriage, David and Deborah divorced. Just prior to the divorce, David executed a promissory note for $150,000 under the terms of which he was to pay an interest payment of $1500 monthly until October 15, 1997. After that date, David was to make principal payments of $4166.67 plus interest payments until the indebtedness was paid in full. Payment of the note was secured by 4000 shares of DLM Enterprises, David's closely-held corporation. The note further provided that it was payable in full if David died. David and Deborah executed a separate security agreement memorializing the grant to Deborah of the 4000 shares of stock. The subsequent agreement incident to divorce reflected that Deborah would receive 4000 shares of DLM and $150,000 in cash if David died. David made interest payments from March 1989 to December of 1991. However, in December 1991 DLM ceased all business except for the collection of accounts receivable, and David resigned as a director and officer of DLM. Deborah received no further payments on the note after December 1991, and she accelerated the note and demanded payment in full by letter dated September 6, 2001. A trial followed at which the trial court granted summary judgment in favor of Deborah and denied David's motion for summary judgment. This appeal followed.
In his first issue, David argues that, for various reasons, the trial court erred in granting Deborah's motion for summary judgment. Specifically, David argues the consideration for the note failed, the contract to sell the stock failed from frustration of purpose, limitations barred Deborah's claims, and Deborah is deemed to have retained the security for the note in full satisfaction of the debt.
When reviewing the trial court's summary judgment, we apply well-known standards. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). David's affidavit establishes that Deborah was awarded 4000 shares of DLM stock under the terms of the parties' agreement incident to divorce. David and Deborah agreed that David would buy the 4000 shares from DLM, and this agreement was memorialized by the promissory note and security agreement signed March 15, 1989. Between March 15, 1989 and November 15, 1991, David made the $1500 payments due under the promissory note. Deborah accepted the 4000 shares of DLM as collateral in order to be paid $150,000. David was made a co-maker of the note to protect Deborah in case DLM failed.
David characterizes the note and security agreement as a memorialization of the parties' agreement that David would "buy" Deborah's 4000 shares of DLM. The note is David's promise to pay, in both his individual capacity and as president of DLM, $150,000 to Deborah. From its express terms, the note states the 4000 shares are collateral. The security agreement provides the 4000 shares are to be held as collateral at Deborah's address and the "collateral is being acquired by [DLM] from [Deborah] or is being acquired with the proceeds of the advance evidenced by this agreement." While David in his capacity as president of DLM presumably would have been entitled to ownership of the 4000 shares once the note was paid in full, it appears, as a matter of law, that the note did not represent a "sale" of 4000 shares.
David argues the consideration for the note failed because Deborah never transferred the 4000 shares over to him. However, it is clear from the record that David did not make the full number of payments that would have released the 4000 shares held as collateral. For the same reason, we reject David's assertion that the contract to "sell" the stock failed from frustration of purpose. The fact that DLM ceased business in 1991, negatively impacting the value of the 4000 shares held as collateral, did not effect David's promise to pay memorialized in the note or frustrate the purpose of obtaining payments under the note. Similarly, we decline to hold that Deborah has retained the devalued shares in full satisfaction of the debt.
David asserts Deborah's claims were barred by the statute of limitations. Specifically, David complains of the trial court's granting of Deborah's hearsay objection to his statement. The statement, contained in his affidavit, was that in November or December 1991 he "informed Deborah McGoodwin that since DLM Enterprises, Inc. was no longer in business, no further payments would be made on the Promissory Note." David argues this statement was not hearsay and proved that he repudiated the note in November or December of 1991. Thus, David argues, Deborah's cause of action to recover under the note accrued in December 1991, and the four-year statute of limitations ran in December 1995, well before she filed suit on October 5, 2001.
The note in question specifically states a schedule of payments of $1500 in interest per month payable on the fifteenth day of the month beginning March 15, 1989, and continuing until October 15, 1997, at which time principal payments of $4166.67 plus accrued interest are to begin until the entire indebtedness is paid. With the note is a schedule of monthly payments from October 1997 to September 2000. The note is therefore a "note payable at a definite time." Tex. Bus. Com. Code Ann. § 3.108(b) (Vernon 2002); Parker v. Dodge, 98 S.W.3d 297, 300 (Tex.App.-Houston [1st Dist.] 2003, no pet.). The correct statute of limitations, effective January 1, 1996, for a note payable at a definite time is six years. Tex. Bus. Com. Code Ann. § 3.118(a) (Vernon 2002); Parker, 98 S.W.3d at 300.
On an installment note, the limitation period is computed from the time each installment becomes due because that is the time when action may be brought to recover it. Lufkin Nursing Home, Inc. v. Colonial Invest. Corp., 491 S.W.2d 459, 463 (Tex.App.-Amarillo 1973, no writ). When one party to an agreement has repudiated it, the other party may treat the repudiation as inoperative, awaiting the time when the agreement is to be executed and, after non-performance under the agreement, hold the repudiator responsible for all consequences of such non-performance. Id. (citing Pollack v. Pollack, 39 S.W.2d 853, 857 (Tex. Comm'n App. 1931, holding approved)).
Assuming for the sake of argument that David's statement that he intended to make no further payments on the note was improperly excluded and constituted a repudiation of the note, such a repudiation did not have the effect of causing Deborah's entire claim on the note to accrue for limitations purposes. See Lufkin, 491 S.W.2d at 463. However, Deborah's recovery should have been limited to the amount of payments due in the six-year period before she filed suit on October 5, 2001. See Tex. Bus. Com. Code Ann. § 3.118(a) (Vernon 2002); Lufkin, 491 S.W.2d at 463. Accordingly, the trial court did not err in denying David's motion for summary judgment. However, the summary judgment in Deborah's favor should not have included payments accruing outside the six-year limitations period. See Nixon, 690 S.W.2d at 548-49.
Accordingly, we reverse the court's summary judgment and remand for further proceedings.