Jenkins v. Karlton

• Decision Date: 01 September 1991
• Docket Number: No. 53,53
• Parties: , 22 UCC Rep.Serv.2d 769 Albert E. JENKINS v. John S. KARLTON. ,
• Court: Maryland Court of Appeals

Page 510

329 Md. 510

620 A.2d 894, 22 UCC Rep.Serv.2d 769

Albert E. JENKINS v. John S. KARLTON.

No. 53, Sept. Term, 1991.

Court of Appeals of Maryland.

March 11, 1993.

Glenn E. Bushel (Brocato, Price & Bushel, P.A., all on brief), Baltimore, for petitioner.

Stewart P. Hoover, Shapiro and Olander, both on brief, Baltimore, for respondent.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, KARWACKI and ROBERT M. BELL, JJ.

ROBERT M. BELL, Judge.

The issue presented in this case is whether parol evidence of the parties' intentions, expressed prior to, or contemporaneously with, the execution of a demand note, or the debtor's subsequent acknowledgment of the debt, may vary the terms of that note. The Circuit Court for Baltimore County, finding that neither could, dismissed, as barred by limitations, the action on the note that John S. Karlton ("Karlton") filed against Albert E. Jenkins ("Jenkins") more than three years after its execution. The Court of Special Appeals disagreed. Reversing the trial court, that court held that the case fell within an exception to the general rule that the statute of limitations begins to run on the date that a demand note is executed. Karlton v. Jenkins, 86 Md.App. 556, 558, 587 A.2d 580, 581 (1991). We granted Jenkins' petition for certiorari.

I.

Prior to obtaining the loan in question, Jenkins raised money to enable Karlton and Karlton's companies, J.S. Karlton Company, Inc. and J.S. Karlton Management Company, to create limited partnerships. While their business relationship was ongoing, Jenkins informed Karlton of problems he was having with the Internal Revenue Service, occasioned by his inability to pay delinquent taxes. Karlton offered to and, in fact, did, lend Jenkins $15,000. Karlton testified that on February 15, 1985, when he gave Jenkins the money, he told him: "Pay me back when you can. It appears to me that you're going to have a good future with us. You should be able to make money. Pay me back when you can."

Later that day, Karlton sent Jenkins a letter, in which was enclosed a form of promissory note. The letter requested that it be executed and "returned ... by return receipt."

The promissory note, which was in the amount of $15,000 and not under seal, was executed by Jenkins on February 21, 1985. It contained a "due date" of "on demand". In addition to repeating that it was payable on demand, the body of the note provided for "interest prior to maturity at the rate of 10%" and, in the event of default and placement with an attorney for collection, that

the Maker and endorsers agree to pay all costs of collection including reasonable attorneys' fees which shall be added to the amount due under this Note and recoverable with the amount of the same to the holder thereof at maturity and if thereafter any endorser shall place the same with an attorney for collection against Maker, prior endorsers or any of them, then they agree to pay to said endorsers all costs of collection including reasonable attorneys' fees which shall be added to the amount due under this Note and recoverable with the amount of this Note.

Four months later, in a telephone conversation initiated by Jenkins, the parties discussed Jenkins' ability to pay the note. Karlton agreed at that time to give Jenkins a "little time to gather his resources." That forebearance was confirmed in a letter, dated June 14, 1985, from Karlton to Jenkins. Karlton wrote:

We have agreed that even though the note is a demand note, no demand would be made for at least one year from the time that I lent you the money. Therefore, you can be assured that no demand will be made earlier than February 15, 1986, and I would be willing to extend it three months beyond that, which would get you through the tax season, if it will help you.

Karlton first made demand of Jenkins for payment of the note by letter dated July 7, 1988. ¹ When the note was not paid, he filed suit on the note on September 26, 1988. By that action, Karlton sought judgment in the amount of $25,000, consisting of the face amount of the note and accrued interest and reasonable attorneys' fees incurred in connection with its collection.

At the end of Karlton's case, Jenkins moved to dismiss the action. ² He argued that, since it was brought more than three years after the date of the note and the June 14 1985 letter did not vary the terms of the note, the action was barred by limitations.

The trial court agreed. Granting the motion for judgment, it reasoned:

If it was anticipated that payment was to begin at a later date, then you can always begin your note payable on such-and-such a date. I can't have you now read into the note reasons for it [not] being made on demand and that payment was to begin on a later date because of that.

The court also concluded that the June 14, 1985 letter did not bring the suit within the exception to the general rule that the statute of limitations on a demand note begins to run on the date of the note.

Reversing the trial court, the intermediate appellate court "examine[d] not only the words of the instrument itself but 'the purpose and circumstances' as well", Karlton, 86 Md.App. at 558, 587 A.2d at 581, quoting Blick v. Cockins, 131 Md. 625, 630, 102 A. 1022, 1024 (1917), and concluded that the uncontroverted evidence, considered most favorably to Karlton, if believed, was sufficient to prove the applicability of an exception to the general rule. The Court noted, as the relevant circumstances

the extreme financial difficulties of Jenkins at the time, the pressures on him from the Internal Revenue Service, at least an implicit understanding that Jenkins could not repay the loan immediately and thus the "pay me back when you can" words heretofore referred to, which also show the anticipation that the parties would have an enduring and fruitful relationship.... [and] Karlton's letter to Jenkins of June 14, 1985.

Id., 86 Md.App. at 559, 587 A.2d at 581.

II.

The parties do not disagree as to the effect that the statute of limitations has on a promissory note payable on demand. They agree that, in Maryland, consistent with the general rule, see J.A. Bock, Annotation, When Statute of Limitations Begins To Run Against Notes Payable On Demand, 71 A.L.R.2d 284 (1957), and cases there cited, it has long been well settled that demand notes are payable immediately, without demand. Continental Oil Co. v. Horsey, 177 Md. 383, 385, 9 A.2d 607, 608 (1939); Blick v. Cockins, 131 Md. at 630, 102 A. at 1023; Fells Point Sav. Inst. v. Weedon, 18 Md. 320, 327 (1862); Young v. Mayne Realty, 48 Md.App. 662, 666, 429 A.2d 296, 298 (1981). Consequently, they also agree that, considered in context with Maryland Code (1974, 1989 Repl.Vol., 1992 Cum.Supp.) § 5-101 of the Courts & Judicial Proceedings Article ³, the general three year statute of limitations, unless an action on a demand promissory note was brought within three years of its date or delivery, it is barred. This is so because the statute begins to run when the payment becomes due, i.e., on the date the note is executed. Weedon, 18 Md. at 326; Darnall's Exrs. v. Magruder, 1 H. & G. 439, 440 (1827).

Karlton concedes that the general rule was codified, with respect to negotiable instruments, when Maryland adopted the Uniform Commercial Code ("U.C.C.") in 1963. See Chapter 538, Acts of 1963. That concession is appropriate. Section 1-102(2)(a) and (c) the Maryland Uniform Commercial Code specifies as among the purposes of the enactment: "[t]o simplify, clarify and modernize the law governing commercial transactions" and "[t]o make uniform the law among the various jurisdictions." This Court has observed: "[t]he basic plan of [the Maryland U.C.C.] is to deal with the normal and ordinary aspects of a commercial transaction from start to finish by means of nine subtitles, eight of which are devoted to a specific phase or facet of commercial activity." Universal C.I.T. Credit Corp. v. Congressional Motors, 246 Md. 380, 387, 228 A.2d 463, 468 (1967). See Madison Nat'l Bank v. Newrath, 261 Md. 321, 338, 275 A.2d 495, 504 (1971) ("the intent and purpose of the Act is to provide comprehensive legislation in a given field [i.e., commercial transactions]"); In re Automated Bookbinding Serv., Inc., 471 F.2d 546, 552 (4th Cir.1972) (the U.C.C.'s purpose is to create a precise guide for commercial transactions under which businessmen may predict with confidence the results of their dealings).

Pertinent provisions of the U.C.C., now codified at Maryland Code (1975, 1992 Repl.Vol.) Commercial Law Article, also demonstrate the appropriateness of that concession. Section 3-104 provides:

(1) Any writing to be a negotiable instrument within this title must

(a) Be signed by the maker or drawer; and

(b) Contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this title; and

(c) Be payable on demand or at a definite time; and

(d) Be payable to order or to bearer.

If it is a promise other than a certificate of deposit, the writing is a note. § 3-104(2)(d). Section 3-108 makes clear that a demand note is one that is "payable at sight or on presentation" or "in which no time for payment is stated." A cause of action on a demand note accrues "upon its date, or if no date is stated, on the date of issue." § 3-122(1)(b).

Notwithstanding his concession, Karlton is not persuaded that § 3-122 applies to the note in question. Karlton questions whether one of the provisions of the note has destroyed its negotiability. Aware that allowing for collection fees, including attorneys' fees, does not render the sum payable uncertain, see § 3-106, he contends that this note contains promises regarding attorneys' fees on behalf of both the maker and all endorsers of the note, which, he posits, "[appear] to be an additional promise not permitted by Md.Comm.Law...