Alexander v. Armentrout

• Decision Date: 09 June 2000
• Citation: 24 S.W.3d 267
• Parties: Dan ALEXANDER v. Jay ARMENTROUT, Jr. and Patricia Ruth Armentrout.
• Court: Tennessee Supreme Court

24 S.W.3d 267

Dan ALEXANDER v. Jay ARMENTROUT, Jr. and Patricia Ruth Armentrout.

Supreme Court of Tennessee, at Knoxville.

June 9, 2000.

Timothy S. Belisle and Randall E. Sermons, Johnson City, TN, for appellant, Dan Alexander.

Rick J. Bearfield, Johnson City, TN, for appellees, Jay Armentrout, Jr. and Patricia Ruth Armentrout.

OPINION

DROWOTA, J., delivered the opinion of the court, in which ANDERSON, C.J., BIRCH, HOLDER & BARKER, JJ., joined.

This appeal arises from a dispute between brothers-in-law over the sale of a partnership interest in a family dairy business. After reaching an oral agreement regarding the price of the interest to be sold, the buyer tendered $50,000 of the purchase price to the seller and later presented a promissory note evidencing an obligation for the $61,000 balance of the sale. The seller's home subsequently burned and the note was destroyed. A dispute arose between the parties as to the validity of the note and the existence of an agreement. The seller contends that the note handed to him by the buyer does not contain the true terms of the contract. He argues that his agreement was with the buyers and not with the buyer's corporation. The buyer contends that his corporation is liable on the note and not him personally. A jury found that the note was not accepted by the seller and rendered judgment against the buyer and his wife, rather than against the corporation. In reviewing the trial court's denial of the buyer's motion for a directed verdict, the Court of Appeals reversed the jury's findings and held that the seller accepted the promissory note and was estopped from denying his acceptance. Accordingly, the intermediate court reversed the judgment against the buyer and his wife, finding them not to be personally liable on the promissory note. After a close review of the record, we have concluded that while the Court of Appeals correctly reversed the judgment against the buyer's wife, it erred by reversing the jury's verdict with respect to the buyer personally. We therefore reinstate the jury's verdict and judgment against the buyer.

FACTUAL BACKGROUND

Between 1980 and 1993, Dan Alexander and Jay Armentrout, Jr. owned and operated a dairy farm, Alexander Armentrout Dairies, as a partnership.¹ The two men are brothers-in-law; Alexander is married to Armentrout's sister. In June 1993, after disagreements about certain aspects of the partnership, the men decided to dissolve their business relationship. As a result, Armentrout agreed to purchase Alexander's interest in the partnership for $111,000. Under their agreement, Armentrout was to receive all of the partnership assets and was to assume all partnership liabilities. Aware that Armentrout would be unable to produce the entire $111,000 at once, Alexander agreed to receive a partial payment for his interest, but to finance the balance under a promissory note. The parties did not prepare a written contract for the sale of Alexander's partnership interest to Armentrout.

In July 1993, the parties met at Hamilton Bank to close the sale of Alexander's interest. Alexander received a cashier's check for $50,000, bearing the names of Jay and Patricia Armentrout, as an initial payment toward his interest. (The Armentrouts had obtained a loan to secure the $50,000.) The parties agreed that the $61,000 balance would be paid pursuant to a promissory note that Armentrout would obtain and present to Alexander in the near future. No note had been prepared or executed at the time of the closing.

Sometime thereafter, Armentrout asked the partnership's accountant, Kenneth McCurry, to prepare a promissory note evidencing the balance he owed Alexander for the sale. McCurry drafted a note stating that "for value received, Jay Armentrout d/b/a Armentrout Acres, Inc., promises to pay to the order of Dan Alexander ..., the principal sum of _______________ plus interest accruing from July 6, 1993 at the rate of 7 1/2% per year up to January 20, 1995." The note provided that as of January 1995, the interest rate would change consistent with the rate being charged by the bank on the loan Armentrout secured to finance the sale of the partnership. The promissory note contained two signature lines:

Armentrout Acres, Inc. Signature ________________________ By Jay Armentrout Signature ________________________ Jay Armentrout

The copy of the note admitted at trial contained the figure $61,000 in the blank space for the amount of the note. The only signature on the document was Armentrout's on the line designated for Armentrout Acres, Inc., "By Jay Armentrout." His personal signature line was blank.

Some six to eight weeks after the closing, Armentrout presented the note to Alexander, who was outside working in his fields. Upon an initial reading of the note, Alexander observed that the terms were not what he understood them to be during the closing. Accordingly, he told Armentrout: "Let me take this and look this over and I'll get back with you." At trial Alexander testified that he did not tell Armentrout that the note was acceptable.² When asked at trial whether the note was signed by anyone when he received it, Alexander replied: "I can't sit here in this chair and swear that it was signed by anyone. At that time it was immaterial to me whether it was signed or not, because it wasn't the note—it wasn't the terms we agreed upon."

Alexander retained the note and looked it over on one or two more occasions during the next two or three weeks. He testified that he continued to review the document because he was

trying to figure out where the terms in that note originated, how they came about those terms, as they were contrastly different from what we had agreed upon at the bank. And I was-I, being the lender, was going to prepare to draw up a note of my own at that time and get Mr. Armentrout to sign it stating the terms. That was my intent.

In September 1993, Alexander's home burned and the note was destroyed in the fire. At trial, Alexander testified:

Sometime after that fire, you're trying to recall everything that you lost, what was of importance. One of the things was that note. And within a month to six weeks I told Jay that I had lost that note and I needed another copy to review because those terms that were in that note, being so foreign to me, I couldn't remember exactly what they were after reviewing them just a time or two. And I wanted to review those terms again and get something drawn up that actually was what we were agreed upon.

When asked whether he recalled the terms of the note that Armentrout had presented to him, Alexander replied: "I do now after seeing a copy of it." He testified that he finally received a copy of the note in the summer of 1996-almost three years after his copy was destroyed in the fire.

In June 1995, two years after the sale of the partnership, Alexander received a check drawn on Jay and Patricia Armentrout's personal account in the amount of $6,310, marked with the words "note payment." Alexander testified that although he was "glad to get any money at all," he was "surprised to get the check, and befuddled by the amount." He testified that he was confused by the amount of the check because it "wasn't even the interest up to that time." Nonetheless, Alexander deposited the check into his account. Sometime thereafter Alexander asked Armentrout about the amount of the payment. Armentrout simply informed him to talk with his attorney.

Alexander consulted an attorney to have a note and a deed of trust drafted that accurately stated the terms of the agreement. Alexander's attorney drafted a note and deed of trust and sent them to Armentrout to be signed. Armentrout did not respond.

In January 1996, Alexander received a check drawn on the account of Armentrout Acres, Inc. in the amount of $6,310. He deposited this check into his personal account. After receiving the second payment, Alexander determined that the total of the two payments exceeded the interest due under the note until that time. Accordingly, he wrote Armentrout a check for $700, the amount by which Alexander believed Armentrout had overpaid the interest that had accrued until that point. He mailed the check along with a note stating: "Take this check, and as of today, you still owe me $61,000 because you've overpaid interest by $700. You still owe me $61,000. Sign the note. Sign the deed of trust. And let's get on with it." Armentrout did not respond to the correspondence. Alexander than called Armentrout to find out whether he planned to sign the note. According to Alexander, Armentrout merely told him to talk to his attorney. Alexander received no further payments.

Alexander filed suit against Jay and Patricia Armentrout on September 5, 1996, in the Washington County Circuit Court. Following a trial in October 1997, a jury returned a special verdict form finding that Alexander did not accept the note he received from Armentrout and finding Jay and Patricia Armentrout liable to Alexander for the sale of the partnership interest.³ Although the verdict form did not state the amount of the verdict, the trial court entered judgment in favor of Alexander in the amount of $70,432.15.⁴

The Court of Appeals reversed the jury's verdict. It determined that Alexander was equitably estopped from denying that he accepted the promissory note delivered by Armentrout. Furthermore, the intermediate court found that because Armentrout had signed the note only in his capacity as representative of Armentrout Acres, Inc., he was not personally liable on the note. Lastly, the Court of Appeals found that Patricia Armentrout was not liable on the promissory note because she was not a party to the sale of the partnership interest. For these reasons, the intermediate court held that the trial court erred in denying the defendants' motions for a directed verdict.

We granted Alexander's petition to appeal in order to determine whether the Court of Appeals...