Uland v. National City Bank of Evansville

• Decision Date: 19 April 1983
• Docket Number: No. 1-782A198,1-782A198
• Citation: 447 N.E.2d 1124
• Parties: Theodore B. ULAND, Marylou Uland, Defendants-Appellants, v. The NATIONAL CITY BANK OF EVANSVILLE, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 1124

447 N.E.2d 1124

Theodore B. ULAND, Marylou Uland, Defendants-Appellants, v. The NATIONAL CITY BANK OF EVANSVILLE, Plaintiff-Appellee.

No. 1-782A198.

Court of Appeals of Indiana First District.

April 19, 1983.

Timothy R. Dodd, Evansville, for defendants-appellants.

Alan N. Shovers, Patrick A. Shoulders, Marilyn R. Ratliff, Kahn, Dees, Donovan & Kahn, Evansville, for plaintiff-appellee.

NEAL, Judge.

STATEMENT OF THE CASE

Defendants-appellants Theodore B. Uland (Ted) and Marylou Uland (Marylou) appeal an adverse judgment on a note, rendered against them jointly and severally by the Vanderburg Superior Court in favor of The National City Bank of Evansville (Bank), the plaintiff-appellee.

We affirm.

ISSUES

The issues presented for review are as follows:

I. Is the Bank's claim barred by the ten year statute of limitations; and

II. Is the evidence sufficient to sustain the decision of the trial court against Marylou's defense of non est factum regarding a guaranty agreement purportedly executed by her.

For clarity the statement of facts relating to each issue will be stated in the discussion of that issue.

DISCUSSION AND DECISION

Issue I. Statute of limitations

On January 19, 1968, Ted executed a note to the Bank for the sum of $83,520. The note contained an acceleration clause which stated that upon default "this note shall, at the option of the holder hereof, immediately become due and payable." The note was payable in 36 monthly installments of $2,320 each commencing February 25, 1968. The proceeds of the note were for the refinancing of Ted's oil well drilling business and other enterprises, and for machinery. The note was secured by a security agreement on 14 pieces of equipment. The first payment was made when due, but the payments then became delinquent and remained delinquent throughout, although substantial payments continued to be made. On May 16, 1969, the Bank sent Ted a letter, the contents of which are as follows:

"Your account is seriously in default and we cannot continue to carry your obligation in this manner.

The March 25 installment in the total amount of $2,348.25 is past due together with the April 25 installment in like amount. We are surprised and concerned that you have neglected this obligation. We cannot under any conditions continue to carry the obligation in default and in view of your continued neglect, we must ask that you make immediate arrangements to liquidate the full balance of $62,645 within one week from this date.

We are sorry that this action is necessary; however, our Directors Credit Committee does not wish us to continue on this basis."

Thereafter, according to Ted's own testimony at trial the Bank relented.

"A. No, he [Bert Cottrell, a Bank officer] said that he went to the loan committee, I think after that, and talked them into agreeing to reinstate it if I would catch up on the bank loans. I told him I would try to.

Q. So they were still ...

A. I tried to get reinstated with them. I didn't have the money to catch up with it, so ..."

On May 27, 1969, Cottrell wrote Ted saying:

"After discussing your account with our Credit Committee they have agreed to continue the financing of this debt.

The proviso they make is that all future payments must be received by us on maturity date without exception. We are happy to tell you this good news."

Nevertheless, on June 25, 1969, another letter was sent by Cottrell to Ted informing him that the payment due on that date was not made and,

"... unless we receive the June remittance by return mail and future payments promptly on maturity date, we will have to ask you to make other arrangements for the refinancing of your obligation."

Payments were not kept up, and on December 15, 1969, further correspondence was had from Cottrell to Ted.

"I have just returned from a meeting with our Directors Credit Committee and they are insisting that immediate action be taken on your account.

Unless you communicate with us immediately, we will be forced to pursue legal remedies recommended by the Committee."

The record does not disclose any further action relating to a calling of the loan. Throughout 1968, 1969, and 1970 payments in irregular amounts and at irregular times were received by the Bank, and by January 25, 1971, the balance due was $31,945, at which point the Bank wrote off the note as a bad debt. The evidence is unsatisfactory regarding the sources of the payments. However, it is evident that many of the payments were from oil lease receipts which had been assigned to the Bank as security, insurance paid to the Bank as loss payee on damaged equipment, and the liquidation of collateral. After January 25, 1971, there was a further liquidation of collateral which reduced the balance to $28,085. The last application of payment from any source was in September, 1972. Suit was filed on January 23, 1980.

The parties agree that the case is governed by the ten year statute of limitations contained in Ind.Code 34-1-2-2. The sole question is the date on which the statute commenced to run. Ulands contend that it commenced to run on March 25, 1968 (the date the second payment became delinquent), May 16, 1969, or at the latest December 15, 1969, when, as they contend, the Bank called the loan. They claim that the May 16 and December 15 letters were unequivocal demands for immediate payment, exercising the option to accelerate payments. The Bank claims that the statute commenced to run at maturity of the loan, namely January 25, 1971. Both Ulands and the Bank rely totally on Cowan v. Murphy, (1975) 165 Ind.App. 566, 333 N.E.2d 802.

Cowan draws a distinction between an acceleration clause which is optional with the obligee, and one which is mandatory. The Cowan case was concerned with a mandatory acceleration clause and held that the default triggered its operation according to the terms of the note regardless of the intention of the obligee, and the principal balance became due for all purposes. Therefore, the statute of limitations began to run at the time of the initial default. The case also held that the acceptance of late payments after the default did not operate as a waiver of the mandatory acceleration clause because the whole debt had already become due, and a partial performance of that obligation by part payment could not have had the effect of postponing maturity. Dicta in that case suggests the result here.

"Frieda contends that her acceptance of the late payments in February and April of 1961 operated as a waiver of acceleration clause, and thus no cause of action on the note itself accrued until the whole note had become due at the end of the ten year term. Had the acceleration clause been merely optional, as they usually are, her contention would be correct. See Huston v. Fatka (1903), 30 Ind.App. 693, 66 N.E. 74." (Emphasis added.)

Id. 165 Ind.App. at 572, 333 N.E.2d 802. Cowan cites McFarland v. Christoff, (1950) 120 Ind.App. 416, 92 N.E.2d 555, which in turn relied upon Buchanan et al. v. The Berkshire Life Insurance Company, (1884) 96 Ind. 510.

Buchanan involved an optional acceleration clause. The court set forth the rights of the parties and suggested that where an optional clause was involved, the consensual arrangements of the parties may be controlling.

"This provision is not by way of penalty or forfeiture, but is an agreement between the parties as to the time when the whole debt should become due and collectible. It was thus to become due, not upon notice to the mortgagor or others, but at the option, the choice, of the mortgagee. At what time or in what manner the option should be exercised was not provided for; that was left entirely with the mortgagee. It is one of the cases, we think, in which the institution of proceedings to foreclose the mortgage sufficiently shows the election to treat the whole debt as due and collectible.... When the whole amount became due by the failure to pay as agreed upon, it was not in the power of appellants [mortgagors] to make it otherwise, except with the consent of the mortgagee." (Emphasis added.)

Id. 96 Ind. at 520-21.

Cases from other jurisdictions state that after the option to accelerate has been exercised it is not within the maker's power unilaterally to restore the note to good standing by performance, as the rights of the parties are the same as if the note by its terms became due mandatorily. Wolfey v. Wooten, (1927) 220 Mo.App. 668, 293 S.W. 73; 10 C.J.S. Bills and Notes Sec. 251. See generally, Stephens v. The Huntington and Drovertown Building, Loan and Savings Association, (1881) 76 Ind. 109. However, the obligee must do some positive act to indicate the exercise of the option, and until that time the maker of the note may terminate that right by the tender of performance. Toomey v. Cammack, (1975) D.C.App., 345 A.2d 453; Santini v. Fritkin, (1965) 240 Md. 542, 214 A.2d 578. Accordingly the holder may lose or waive his right by acceptance of payments after default. Colorado Kenworth Corporation v. Whitworth, (1960) 144 Colo. 541, 357 P.2d 626; Slaymaker v. Peterkin, (1974) Alaska, 518 P.2d 763. Further, as relevant here, the fact that a holder has exercised his option to accelerate all payments does not render his actions irrevocable with respect to his right to waive the exercise of the option, at least where the maker does not object. ...