Work v. Allgier, 28454
| Decision Date | 11 July 2018 |
| Docket Number | No. 28454,28454 |
| Citation | 915 N.W.2d 859 |
| Parties | Cody WORK, Plaintiff and Appellant, v. Russ ALLGIER, Defendant and Appellee. |
| Court | South Dakota Supreme Court |
MICHAEL S. BEARDSLEY of Beardsley, Jensen & Lee, Prof. LLC, Rapid City, South Dakota, Attorneys for plaintiff and appellant.
JASON M. SMILEY of Gunderson, Palmer, Nelson & Ashmore, LLP, Rapid City, South Dakota, Attorneys for defendant and appellee.
[¶ 1.] In this breach of contract case by a creditor to recover unpaid installments under a promissory note, the debtor moved for summary judgment. The debtor relied on an acceleration provision in the note and asserted that the statute of limitations had expired on the creditor’s claim six years after the debtor defaulted. The creditor resisted summary judgment, asserting that a jury must determine whether the debtor’s conduct following default warranted a different limitation period. After a hearing, the circuit court granted the debtor summary judgment. We reverse and remand.
[¶ 2.] In February 2009, Cody Work entered into a stock purchase agreement for the sale of 1,500 shares of Premier Home Mortgage, Inc. stock to Russell Allgier for $375,000. Under the parties’ agreement, Allgier agreed to: (1) assume Work’s $40,000 loan obligation to the company; (2) pay Work $75,000 at closing, $15,000 on March 15, 2009, and $15,000 on April 1, 2009; and (3) pay the remaining balance ($230,000) plus interest in 54 monthly installments. Allgier executed a promissory note in favor of Work for $230,000. The note set forth that Allgier would pay Work $4,977.54 per month for 54 months beginning on May 15, 2009, and ending on October 15, 2013. The promissory note contained an automatic acceleration provision, rendering the entire obligation due in full upon default in payment of any installment or default in payment of interest due.
[¶ 3.] This appeal concerns Allgier’s payments under the promissory note. It is undisputed that Allgier made the first payment late, which Work accepted. He also made untimely or partial payments from November 2009 through November 2010, which payments Work accepted. Allgier did not make a payment for the installment due on December 15, 2010, and made no other payments under the note. The parties treated December 15, 2010 as the date of default. It is arguable, however, that Allgier defaulted under the note when he failed to timely make the first payment on May 15, 2009.
[¶ 4.] Nevertheless, the parties agree that following Allgier’s failure to make the payment due in December 2010, the two discussed alternate ways Allgier could satisfy his debt to Work. The parties continued their discussions into 2015. The parties dispute whether they came to a new agreement. According to Allgier, he and Work reached a new agreement, although they did not reduce it to writing. Allgier relied on copies of emails as evidence of the agreement.
[¶ 5.] Ultimately, Work brought suit against Allgier for breach of contract under the note. He commenced suit on April 4, 2017. Allgier answered and moved for summary judgment. He argued that the statute of limitations had expired on Work’s cause of action in December 2016 because more than six years had elapsed from Allgier’s December 2010 default under the note. According to Allgier, Work’s cause of action accrued on December 15, 2010 based on the fact that the automatic acceleration provision in the note rendered Allgier’s debt due in full upon default.
[¶ 6.] In response, Work asserted that his claim did not accrue until Work elected to enforce the acceleration provision against Allgier. Under this view, because Work did not elect to accelerate the debt, Work claimed he is entitled to recover for the unpaid installments that came within the limitation period. Work alternatively claimed that the parties’ negotiations and discussions following default created a question of fact on Allgier’s right to assert that the debt accelerated. In Work’s view, it would be unjust to allow Allgier to use the acceleration provision against Work when Work continually exercised leniency toward Allgier despite Allgier’s late, partial, or absent payments under the note.
[¶ 7.] After a hearing, the circuit court granted Allgier summary judgment. The court concluded that Work’s cause of action accrued in December 2010, and therefore, the statute of limitations had expired in December 2016. Work appeals, asserting that the circuit court erred when it granted Allgier summary judgment.
[¶ 8.] Our standard of review from a decision to grant summary judgment is well settled:
We must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.
East Side Lutheran Church of Sioux Falls v. NEXT, Inc. , 2014 S.D. 59, ¶ 8 n.4, 852 N.W.2d 434, 438 n.4 (quoting De Smet Farm Mut. Ins. Co. of S.D. v. Busskohl , 2013 S.D. 52, ¶ 11, 834 N.W.2d 826, 831 ).
[¶ 9.] In 1910, this Court held that an automatic acceleration provision in a promissory note self-executes upon the happening of the stated condition, thereby causing the entire debt to mature and the statute of limitations to commence against the indebtedness. Green v. Frick , 25 S.D. 342, 126 N.W. 579, 581 (1910). In contrast, an optional acceleration provision gives the creditor the option to elect to accelerate the debt upon the happening of the stated condition, and the statute of limitations does not begin to run on the entire obligation unless "the creditor affirmatively and unequivocally makes known to the debtor [the creditor’s] intention to declare the whole debt due." See H.C. Clark Implement Co., Inc. v. Wiedmer , 389 N.W.2d 816, 817 (S.D. 1986) ().
[¶ 10.] It is undisputed that this case involves an automatic acceleration provision. The provision provides:
In the case of default in payment of any installment or of any interest when due, the whole of this note, both principal and interest shall be immediately due and payable . The maker hereof hereby waives presentment for payment, notice of nonpayment, protest and notice of protest.
(Emphasis added.) The parties treated December 2010 as the date of default. Under Frick , therefore, the entire debt matured upon Allgier’s default, and the statute of limitations commenced on Work’s cause of action against Allgier to recover under the note.
[¶ 11.] Work, however, asks this Court to reconsider its decision in Frick and adopt the view that a statute of limitations does not begin to run upon default under a promissory note, regardless of the automatic acceleration provision in the note, unless the creditor exercises the option to accelerate the debt. Work directs this Court to cases from other jurisdictions for the proposition that an acceleration provision, although absolute, is not self-executing, and therefore, the creditor’s cause of action does not accrue until "the creditor takes positive action indicating that [it] has elected to exercise the option." Nat’l Bank of Commerce Trust & Savings Ass’n. v. Ham , 256 Neb. 679, 592 N.W.2d 477, 480 (1999) ; accord Casper v. Bell’s Estate , 358 Mo. 995, 218 S.W.2d 606, 609 (1949) ; Tower Grove Bank & Trust Co. v. Duing , 346 Mo. 896, 144 S.W.2d 69, 71 (1940).
[¶ 12.] According to Work, the above cases represent the more reasoned view. He emphasizes that an acceleration provision is solely for the benefit of the creditor. Thus, according to Work, a debtor should not be able to use the acceleration provision to escape a contractual obligation when a creditor declines to accelerate the debt. To conclude otherwise, Work argues, would prohibit creditors from exercising leniency toward debtors and would discourage parties from attempting to resolve their disputes without litigation.
[¶ 13.] In Frick , John J. and Mary Frick executed a mortgage in favor of Sayles Green, which mortgage was secured by seven promissory notes. 25 S.D. at 342, 126 N.W. at 579. The Fricks never made a payment on the promissory notes. Green brought an action against the Fricks to foreclose on the purchase-money mortgage and sought a deficiency judgment on the debt due under the notes. In response, the Fricks claimed that the statute of limitations had expired on Green’s foreclosure action and on his right to recover the debt due on the notes. The Fricks relied on an acceleration provision in the mortgage, asserting that "the entire indebtedness became due and collectible on default in payment of the first note due December 1, 1895, and that the whole indebtedness [was] barred by the six-year statute[.]" Id. at 342, 126 N.W. at 580. The Fricks further claimed that because the indebtedness was barred, the mortgage was also barred because it was "merely an incident to the indebtedness." Id. The trial court disagreed, and entered a decree of foreclosure and an order for a deficiency judgment on the notes.
[¶ 14.] On appeal, the Court upheld the trial court’s decree of foreclosure. It is well settled that an expired statute of limitations on an indebtedness "in no manner affected the right of the mortgagee to foreclose his mortgage and subject the mortgaged property to the lien in satisfaction of the indebtedness." Id. at 342, 126 N.W. at 581. However, the Court reversed the trial court’s order for a deficiency judgment on the notes. Id....
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