Collins v. Environmental Systems Co.

• Decision Date: 21 September 1993
• Docket Number: 92-3521,Nos. 92-3519,s. 92-3519
• Citation: Collins v. Environmental Systems Co., 3 F.3d 238 (8th Cir. 1993)
• Parties: Donald E. COLLINS and Financial Placements, Inc., A Missouri Corporation, Appellants, v. ENVIRONMENTAL SYSTEMS COMPANY, A Delaware Corporation, Appellee, and Melvyn L. Bell. FINANCIAL PLACEMENTS, INC., A Missouri Corporation, Appellant, v. ENVIRONMENTAL SYSTEMS COMPANY, A Delaware Corporation, and Melvyn L. Bell, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 238

3 F.3d 238

Donald E. COLLINS and Financial Placements, Inc., A Missouri

Corporation, Appellants, v. ENVIRONMENTAL SYSTEMS COMPANY, A Delaware Corporation, Appellee, and Melvyn L. Bell.

FINANCIAL PLACEMENTS, INC., A Missouri Corporation, Appellant, v. ENVIRONMENTAL SYSTEMS COMPANY, A Delaware Corporation, and Melvyn L. Bell, Appellees.

Nos. 92-3519, 92-3521.

United States Court of Appeals Eighth Circuit.

Submitted June 17, 1993.

Decided Aug. 12, 1993.

Rehearing Denied Sept. 21, 1993.

Robert Arthur Brunig, Minneapolis, MN, argued (Murray Miller, Phoenix, AZ, on the brief), for appellants.

Joseph W. Anthony, Minneapolis, MN, argued (Leslie S. McEvoy and Leny K. Wallen-Friedman, on the brief), for appellees.

Before JOHN R. GIBSON, Circuit Judge, ROSS, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

MORRIS SHEPPARD ARNOLD, Circuit Judge.

Financial Placements and Donald Collins appeal judgments of the trial court ¹ that claims related to two promissory notes and a stock transfer are barred by the statute of limitations. We affirm the judgments.

I.

In 1972, Pollution Controls, Inc. (PCI), was operating a facility in Minnesota that disposed of hazardous waste. The company was in perilous financial straits and was seeking additional sources of operating capital.

On August 4, 1972, PCI executed a promissory note for $5,000 in favor of Financial Placements, Inc., and Melvyn Bell. The note provided for payment of $5,000 to Financial Placements and Mr. Bell at the end of 30 days. The interest on the note was 2,500 shares of PCI stock.

On August 28, 1972, PCI executed a promissory note for $20,000 in favor of Financial Placements, Inc., and Donald Collins. That note provided for payment of $20,000 to Financial Placements and Mr. Collins at the end of six months. The interest on that note was 10,000 shares of PCI stock. Both notes executed by PCI further provided that if the principal was not paid when due, the payees could receive, at their option, more PCI stock as additional interest on the note.

By late 1972, Melvyn Bell was the majority shareholder in PCI. The company expanded over the years and eventually became part of Environmental Systems Company (ESC). The current value of ESC stock is considerable.

Financial Placements and Mr. Collins eventually demanded payment (apparently in early 1990) on the promissory notes, including a demand for back interest in the form of ESC stock. (It is undisputed that the principal on the notes was not paid at the end of the specified terms. It may have been paid later on one or both of the notes; whether it was and to whom remains in dispute. There is no question, however, that no stock shares for additional interest were ever transferred to Financial Placements or Mr. Collins.) ESC refused to pay. Financial Placements and Mr. Collins then sued ESC and Mr. Bell in two related lawsuits filed in April, 1991.

In one lawsuit, Financial Placements alleged that Mr. Bell had received the proceeds of the $5,000 promissory note but had failed to ensure that Financial Placements received the half-portion of the proceeds due to it. That lawsuit further alleged that in addition to its half-portion of the $5,000 promissory note, Financial Placements was owed additional interest on that note in the form of approximately 326,000 shares of ESC stock. In the other lawsuit, Financial Placements and Mr. Collins alleged that ESC had failed to pay the additional interest due on account of the unpaid principal for the $20,000 promissory note. That interest was alleged to be approximately 2.4 million shares of ESC stock. The trial court granted summary judgment to the defendants on those claims in September, 1992, finding each claim barred by the statute of limitations.

Financial Placements also alleged that in 1973, Mr. Bell had directed that 18,750 shares of PCI stock be issued to Charles Robertson, who was at that time an officer of PCI. Financial Placements contended that those shares had actually been intended to be payment to it for services rendered to PCI, that Mr. Robertson had wrongfully converted the stock to his own use, that PCI and Mr. Bell had allowed the stock to be registered in Mr. Robertson's name although it belonged to Financial Placements, and that ESC and Mr. Bell had refused to return the stock to Financial Placements. The trial court granted summary judgment to the defendants on that claim in September, 1992, finding it barred by the statute of limitations.

II.

Financial Placements and Mr. Collins argued in the trial court that the text of the promissory notes included a waiver of the statute of limitations by PCI. The trial court rejected that argument, however, holding that the notes waived "diligence in collection," which was not the same as a waiver of the statute of limitations.

The trial court then determined that the notes required a "demand in fact" as a prerequisite for maturity, i.e., before the limitations period would begin to run. See, e.g., Pinch v. McCulloch, 72 Minn. 71, 74 N.W. 897, 898 (1898). The trial court held, however, that even with notes requiring a "demand in fact" as a prerequisite for maturity, the demand must be made within a reasonable time. See, e.g., Bannitz v. Hardware Mutual Casualty Co., 219 Minn. 235, 17 N.W.2d 372, 373 (1945). (We construe this holding as a declaration that such notes will be considered to have matured, as a matter of law, after a reasonable time.)

The trial court observed that in cases involving notes subject to a "demand in fact," the Minnesota courts have generally looked to the length of the limitations period to define a reasonable time. See, e.g., Fallon v. Fallon, 110 Minn. 213, 124 N.W. 994, 996 (1910). Using that standard, the trial court concluded that the $5,000 note would have matured in September, 1978, and the $20,000 note in February, 1979--six years after their original due dates, see Minn.Stat.Ann. Sec. 541.05.1(1). Upon maturity, of course, the limitations periods on the notes would have begun to run and would have expired six years later--in September, 1984, on the $5,000 note and in February, 1985, on the $20,000 note. Since Financial Placements and Mr. Collins did not file their lawsuits until 1991, the trial court held, the statute of limitations barred the claims on both notes.

On appeal, Financial Placements and Mr. Collins offer two arguments. First, they contend that the trial court erred in holding that PCI did not waive the statute of limitations. Second, they argue that even if PCI did not waive the statute of limitations, the trial court should have applied an interval longer than the limitations period as the reasonable time to be allowed before the notes were considered, as a matter of law, to have matured and, therefore, to have become subject to the limitations period. We address each of those arguments in turn.

The promissory notes at issue contain the following language:

FOR VALUE RECEIVED, [PCI] promises to pay [in 30 days on the $5,000 note, in six months on the $20,000 note] [to Financial Placements and Melvyn Bell on the $5,000 note, to Financial Placements and Donald Collins on the $20,000 note] ... the principal sum ... with interest thereon in shares of the common stock of [PCI].... Said interest shall be paid regardless of whether the Note is prepaid.

It is further agreed among the parties, in connection with and in consideration of the execution of this Note, as follows:

1. That, in the event any of the principal or interest is not paid when due, the Payees may exercise whatever rights at law or in equity which are available to them, or, at the Payees' option, they shall be entitled to receive additional interest on the unpaid principal balance [at 8 percent per year], payable in the common stock ... of [PCI], at the rate of five (5) shares of such common stock for every dollar of additional interest accrued....

. . . . .

4. That the makers, endorsers, sureties and guarantors hereof hereby severally agree to pay all costs of collection, including reasonable attorney's fees, in case payment shall not be made at maturity, and severally waive presentment for payment, notice of non-payment, protest and notice of protest and due diligence in enforcing payment or bringing suit against any party hereto; and the endorsers, sureties and guarantors hereof hereby severally consent that the time of payment may be extended, or this Note renewed, from time to time, without notice to them and without affecting their liabilities hereon.

In holding that PCI did not waive the statute of limitations in the promissory notes, the trial court observed that the waiver provisions of the notes extended to "a number of technical requirements under the Uniform Commercial Code, including presentment, protest, and notice." The trial court then stated that a waiver of "diligence in collection" is not a waiver of a statute of limitations and declared that "[a] careful reading leads to the conclusion that the language of the note[s] was not intended to waive the statute of limitations defense." We disagree.

It is clear that under Minnesota law, parties to a contract may waive a statute of limitations. See, e.g., State v. Hart Motor Express, Inc., 270 Minn. 24, 132 N.W.2d 391, 394 (Minn.1964). The Minnesota courts have not decided, however (as far as we can tell), whether the exact language in the promissory notes at issue in this case (waiving "diligence in ... bringing suit") effects such a waiver. We note, though, that courts in other states have held that such language does waive a statute of limitations. See, e.g., Ross v. Ross, 96 Ariz. 249, 393 P.2d 933, 934 (1964) (en banc) (although waiver invalid as against public policy, because it effectively repealed a statute of the state); National Bond and Investment Co. v. Flaiger, 322 Mass. 431, 77 N.E.2d 772, 772-73 (1948) (although waiver invalid as against public policy, because it was executed...