Negotiable Instruments--promissory note--signed writing required for release_-summary
judgment
The trial court did not err by granting summary judgment in favor of plaintiff bank based
on defendant's default of a $38,000 promissory note even though defendant contends there was a
genuine issue of material fact regarding whether plaintiff agreed to release defendant from any
liability on the $38,000 debt as part of the reaffirmation agreement between her husband and
plaintiff, because: (1) although defendant contends plaintiff verbally agreed to release her from
the debt obligation, the release was not in a signed writing as required by N.C.G.S. § 25-3-604;
and (2) defendant admitted in her answer that she was in default of her obligations under the
promissory note she signed by failing to make payments when due.
Judge LEVINSON concurring
.
Cranford, Schultze and Tomchin, P.A., by Michael F. Schultze,
for plaintiff-appellee.
James, McElroy & Diehl, P.A., by Richard B. Fennell, for
defendant-appellant Annetta B. Dockery.
HUNTER, Judge.
Defendant, Annetta B. Dockery, appeals the trial court's order
granting summary judgment in favor of plaintiff, First Commerce
Bank. After careful review, we affirm the summary judgment order.
The undisputed facts tend to indicate that on or about 21
November 2002, First Commerce Bank agreed to loan, and defendants,
Michael and Annetta Dockery, agreed to borrow, the original
principal sum of $38,000.00 pursuant to a Promissory Note. Theloan was secured by a 1997 Ford Expedition automobile and a 2000
Sea Doo Boat, which were titled only in Michael Dockery's name.
Michael and Annetta Dockery failed to make payments when due and
were default on their obligations under the promissory note. First
Commerce Bank accelerated the principal balance by filing a
complaint against Michael and Annetta Dockery on 22 May 2003.
Annetta Dockery filed her answer on 23 July 2003.
After the complaint was filed, Michael Dockery sought
bankruptcy protection on 11 July 2003, which resulted in an
automatic stay of the action brought by First Commerce Bank against
Michael Dockery. In response, First Commerce Bank sought relief
from the automatic stay in order to repossess the collateral.
Then, on 4 August 2003, Michael Dockery's attorney sent a letter to
First Commerce Bank regarding the possibility of reaffirming the
debt owed to First Commerce Bank, which would allow Michael Dockery
to retain the ownership of the collateral -- the Ford Expedition
and the Sea Doo Boat. In an exchange of letters, Michael Dockery
and First Commerce Bank agreed to reaffirm the debt for $20,000.00
payable over a sixty month time period with an interest rate of
eight percent (8%). Michael Dockery and First Commerce Bank then
executed a reaffirmation agreement, which contained their agreement
that Michael Dockery would reaffirm $20,000.00 of his indebtedness
owed to First Commerce Bank, payable in sixty monthly installments
with eight percent (8%) interest per year. The agreement also
referenced 11 U.S.C. § 524, which governs reaffirmation agreements. On 30 March 2004, First Commerce Bank moved for summary
judgment against Annetta Dockery. In response, Annetta Dockery
filed an affidavit from Michael Dockery, which stated that First
Commerce Bank agreed to release Annetta Dockery if Michael Dockery
reaffirmed the debt. Boyd Coggins, Vice President of Bank of
Granite, the successor to First Commerce Bank, filed an affidavit
in response to the Micheal Dockery affidavit. Mr. Coggins stated
that Michael Dockery and the Bank agreed that in exchange for
Michael Dockery reaffirming his obligations under the Note for
$20,000.00, the bank would not seek relief from the automatic stay
to repossess the collateral. According to Mr. Coggins, there was
no agreement reached concerning the balance of the debt as it
relates to any other obligor or guarantor. The trial court
determined there were no genuine issues of material fact and
entered summary judgment in favor of First Commerce Bank. Annetta
Dockery appeals.
Annetta Dockery contends the trial court erroneously granted
summary judgment to First Commerce Bank because a genuine issue of
material fact exists regarding whether First Commerce Bank agreed
to release Annetta Dockery from any liability on the $38,000.00
debt as part of the reaffirmation agreement between Michael Dockery
and First Commerce Bank. Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that any party isentitled to a judgment as a matter of law.” N.C. Gen. Stat. §
1A-1, Rule 56(c) (2003).
When the party bringing the cause of action
moves for summary judgment, he must establish
that all of the facts on all of the essential
elements of his claim are in his favor and
that there is no genuine issue of material
fact with respect to any one of the essential
elements of his claim. In other words, the
party must establish his claim beyond any
genuine dispute with respect to any of the
material facts. An issue is genuine if it may
be maintained by substantial evidence. An
issue is material if the facts as alleged
would constitute a legal defense, would affect
the result of the action or would prevent the
party against whom it is resolved from
prevailing in the action. If the movant
carries his burden of establishing prima facie
that he is entitled to summary judgment then
his motion should be granted unless the
opposing party responds and shows either that
a genuine issue of material fact exists or
that he has an excuse for not so showing. If
the movant fails to carry his burden, the
opposing party does not have to respond and
summary judgment is not proper regardless of
whether he responds or not.
Development Corp. v. James, 300 N.C. 631, 637, 268 S.E.2d 205, 209-
10 (1980) (citations omitted). “In ruling on the motion, the court
must consider the evidence in the light most favorable to the
nonmovant, who is entitled to the benefit of all favorable
inferences which may reasonably be drawn from the facts proffered.”
Averitt v. Rozier, 119 N.C. App. 216, 218, 458 S.E.2d 26, 28
(1995).
“A reaffirmation agreement is a contract between a debtor and
a creditor. In substance a reaffirmation agreement is a new
contract that renegotiates or reaffirms the original debt.
Conventional contract principles apply to reaffirmationagreements.” Schott v. Wyhy Fed. Credit Union, 282 B.R. 1, 7
(B.A.P. 10th Cir. 2002) (citations omitted). Thus, state law
governs the construction and interpretation of a reaffirmation
agreement. Id.
The promissory note entered into by Annetta Dockery is a
negotiable instrument governed by Article 3 of the Uniform
Commercial Code (“UCC”), N.C. Gen. Stat. § 25-3-101 et seq.
According to N.C. Gen. Stat. § 25-3-104 (2003), the following
elements are required for an instrument to be classified as a
negotiable instrument:
(a) Except as provided in subsections (c)
and (d) of this section, “negotiable
instrument” means an unconditional promise or
order to pay a fixed amount of money, with or
without interest or other charges described in
the promise or order, if it:
(1) Is payable to bearer or to order at
the time it is issued or first comes
into possession of a holder;
(2) Is payable on demand or at a
definite time; and
(3) Does not state any other undertaking
or instruction by the person
promising or ordering payment to do
any act in addition to the payment
of money, but the promise or order
may contain (i) an undertaking or
power to give, maintain, or protect
collateral to secure payment, (ii)
an authorization or power to the
holder to confess judgment or
realize on or dispose of collateral,
or (iii) a waiver of the benefit of
any law intended for the advantage
or protection of an obligor.
. . .
(d) A promise or order other than a check
is not an instrument if, at the time it is
issued or first comes into possession of a
holder, it contains a conspicuous statement,
however expressed, to the effect that the
promise or order is not negotiable or is not
an instrument governed by this Article.
Id. The promissory note in this case complies with all of the
provisions in N.C. Gen. Stat. § 25-3-104(a)(1)-(3) and it does not
contain a conspicuous statement indicating it is not negotiable.
Therefore, the promissory note is a negotiable instrument governed
by the UCC.
Under the UCC: “A person entitled to enforce an instrument,
with or without consideration, may discharge the obligation of a
party to pay the instrument . . . (ii) by agreeing not to sue or
otherwise renouncing rights against the party by a signed writing.”
N.C. Gen. Stat. § 25-3-604(a) (2003) (emphasis added). Although
Annetta Dockery contends First Commerce Bank verbally agreed to
release her from the debt obligation, the release was not in a
signed writing as required by N.C. Gen. Stat. § 25-3-604. See id.
As Annetta Dockery admitted in her answer that she was in default
of her obligations under the promissory note she signed because she
failed to make payments when due, summary judgment was properly
granted by the trial court.
Affirmed.
Judge McCULLOUGH concurs.
Judge LEVINSON concurs in a separate opinion.
LEVINSON, Judge concurring. I write separately to clarify why, in my view, the superior
court order should be affirmed.
In her three-page argument, appellant contends that there are
genuine issues of material fact as to “whether the [reaffirmation
agreement] evidenced the full agreement between the parties” and
“whether the parties agreed to release [appellant] in return for
Michael Dockery's agreement to reaffirm his liability on the debt.”
Appellant essentially contends that as part of the consideration
supporting the reaffirmation agreement, First Commerce Bank
(hereinafter “bank”) agreed to release her from the $38,000
promissory note. I conclude that admission of evidence concerning
appellant's release from debt would impermissibly add to the clear
and unambiguous terms of the written reaffirmation agreement, which
represents a fully integrated contract.
Preliminarily, I observe that because it appears the
reaffirmation agreement itself does not meet the requirements set
forth in N.C.G.S. § 25-3-104 (2003) for negotiable instruments, and
because neither party contends on appeal that the provisions of
Article 3 of the UCC apply to this agreement, I resolve this matter
by application of common law principles. With respect to the
original $38,000 promissory note that is the subject of the current
action against appellant, I agree with the majority that Article 3
of the UCC generally governs.
Appellant's argument that the bank agreed not to seek recourse
against her if Michael Dockery agreed to the reaffirmation depends
entirely on the introduction of parol evidence. This is becausethere is nothing within the agreement whatsoever that purports to
release her from the $38,000 obligation to the bank. Michael
Dockery's affidavit, which states that the bank “agreed to release
[appellant] if I reaffirmed the debt[,]” was offered by appellant
in opposition to the bank's motion for summary judgment on the
debt. In response, the bank tendered an affidavit from its
executive which stated that the bank agreed not to “seek relief
from [the bankruptcy] stay to repossess [the collateral, a Ford
vehicle and recreational boat,]” and that “[a]t no time was any
agreement reached concerning the balance of the debt as it relates
to any other obligor or guarantor.” Indeed, as the record reveals,
the reaffirmation agreement was entered as a consequence of a
bankruptcy case involving only Michael Dockery (No. 03-32605
W.D.N.C.).
The affidavit appellant seeks to admit would violate the parol
evidence rule, which “prohibits the consideration of evidence as to
anything which happened prior to or simultaneously with the making
of a contract which would vary the terms of the agreement.”
Harrell v. First Union Nat. Bank, 76 N.C. App. 666, 667, 334 S.E.2d
109, 110 (1985), affirmed, 316 N.C. 191, 340 S.E.2d 111 (1986).
The
parol evidence rule prohibits the admission of evidence “'to
vary, add to, or contradict [the terms of] a written instrument
intended to be the final integration of the transaction.'” Godfrey
v. Res-Care, Inc., 165 N.C. App. 68, 76, 598 S.E.2d 396, 402
(quoting Hall v. Hotel L'Europe, Inc., 69 N.C. App. 664, 666, 318
S.E.2d 99, 101 (1984)), disc. review denied, 359 N.C. 67, 604S.E.2d 310 (2004). Our Supreme Court has also described the parol
evidence rule as follows:
It appears to be well settled in this
jurisdiction that parol testimony of prior or
contemporaneous negotiations or conversations
inconsistent with a written contract entered
into between the parties, or which tends to
substitute a new or different contract for the
one evidenced by the writing, is incompetent.
2 Stansbury's N.C. Evidence 253 (Brandis Rev.
1973). This rule applies where the writing
totally integrates all the terms of a contract
or supersedes all other agreements relating to
the transaction. The rule is otherwise where
it is shown that the writing is not a full
integration of the terms of the contract. The
terms not included in the writing may then be
shown by parol. Id., § 252.
Craig v. Kessing, 297 N.C. 32, 34-35, 253 S.E.2d 264, 265-66
(1979).
Appellant contends that, because the reaffirmation agreement
does not contain a merger clause, it cannot constitute a complete
integration. Appellant misstates the law in this regard.
The inclusion of a merger clause does not conclusively
determine whether a contract is fully integrated. See Restatement
(Second) of Contracts, § 216 (1981)(“a [merger and integration]
does not control the question whether the writing was assented to
as an integrated agreement. . . .”); see also Zinn v. Walker, 87
N.C. App. 325, 333, 361 S.E.2d 314, 318 (1987). The words of a
merger clause do not categorically determine whether a contract is
fully integrated, but only “create a rebuttable presumption that
the writing represents the final agreement between the parties.”
Zinn, 87 N.C. App. at 333, 361 S.E.2d at 318. A merger clause “is
evidence of the intention of the parties to the [contract] that itconstitute their entire agreement[.]” Drug Stores v. Mayfair, 50
N.C. App. 442, 449, 274 S.E.2d 365, 369 (1981).
Further, a contract may be fully integrated even though the
drafters omit the merger clause:
[W]here the parties have deliberately put
their engagements in writing in such terms as
import a legal obligation free of uncertainty,
it is presumed the writing was intended by the
parties to represent all their engagements as
to the elements dealt with in the writing.
Accordingly, all prior and contemporaneous
negotiations in respect to those elements are
deemed merged in the written agreement.
Neal v. Marrone, 239 N.C. 73, 77, 79 S.E.2d 239, 242 (1953)
(emphasis added); see also Weiss v. Woody, 80 N.C. App. 86, 91, 341
S.E.2d 103, 106 (1986).
Appellant does not cite any authority to support its
contention that, in the absence of a merger clause, an agreement
cannot constitute a complete integration, and we find none. Nor
does appellant cite any North Carolina or other authority
illustrating or suggesting that the Dockery affidavit is
admissible. Our common law, in fact, suggests the contrary result.
See id.; see also Craig, 297 N.C. at 34-35, 253 S.E.2d at 265-66
.
In sum, appellant's conclusory argument that the reaffirmation
agreement was not intended as a complete integration is
unconvincing. In my view, the record unequivocally demonstrates
that the reaffirmation agreement was intended as a fully integrated
memorialization of a negotiated settlement between Michael Dockery
and the bank, and that allowing parol evidence of a purported
agreement by the bank to forego its remedies on the $38,000 noteagainst appellant would impermissibly add to the agreement, or
“tend[] to substitute a new or different contract for the one
evidenced by the writing
”
in violation of Craig.
Since the record suggests only that the agreement was intended
to be fully integrated, the admission of parol evidence for reasons
other than certain exceptions would be error:
[P]arol evidence of a failure of consideration
may be admissible to elucidate the terms of a
contract. However, in . . . cases wherein
parol evidence was admitted to show lack of
consideration, the evidence pertained to a
condition precedent that was not stated on the
face of the contract, but which was a
condition on which the validity of the
contract depended. Therefore, the parol
evidence did not contradict the contract, but
merely set out the full understanding between
the parties. In [these cases], the parol
evidence was necessary to explain the terms of
the contract. However, parol evidence is not
admissible to contradict the language of the
contract.
Thompson v. First Citizens Bank & Tr. Co., 151 N.C. App. 704, 709,
567 S.E.2d 184, 189 (2002) (citations omitted).
Appellant contends neither that parol evidence is necessary to
establish, e.g., fraud, mistake or undue influence, nor that parol
evidence is necessary to help clarify or understand the express
terms of the reaffirmation agreement. And appellant does not
suggest that there was a condition precedent to the obligations
contained in the reaffirmation agreement, or that Michael Dockery's
affidavit is admissible to demonstrate a failure of consideration
and an elucidation of the contractual terms. Instead, appellant
acknowledges that the bank's agreement to forego its remediesagainst appellant would constitute an “additional term” which will
“supplement” the agreement. Again, as discussed above, the parol
evidence rule bars such evidence on the facts of this case.
Even assuming, arguendo, the bank agreed not to collect on
appellant's obligation as part of its reaffirmation with Michael
Dockery, appellant does not articulate _ and this Court therefore
need not address _ whether or how she could utilize the same as an
intended third party beneficiary and/or as a legal defense in the
bank's direct action against her on the $38,000 note.
I conclude that any evidence that the bank agreed not to
pursue its remedies against appellant on the $38,000 note would
impermissibly allow an addition to the clear and unambiguous terms
of the written reaffirmation agreement, which represents a fully
integrated contract. Consequently, Michael Dockery's affidavit
does not help appellant defeat the bank's motion for summary
judgment, and appellant's generalized contention that the affidavit
raises a genuine issue of material fact fails. Finally, appellant
has not articulated how this would, in any event, provide a bar to
the present action.
Like the majority, I conclude summary judgment was properly
granted in favor of plaintiff.
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