Whitaker v. Limeco Corp.
| Docket Number: | 2009-CA-00351-SCT | |
| Supreme Court: | Opinion Link Opinion Date: 04-08-2010 Opinion Author: Carlson, P.J. Holding: Affirmed in part, reversed in part and remanded. |
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| Additional Case Information: |
Topic: Contract - Statute of limitations - Negotiable instruments - Section 75-3-104 - Section 75-3-118(b) - Section 75-3-109(b) - Section 15-1-49 - Fraudulent concealment - Section 15-1-67 - Corporate liability Judge(s) Concurring: Waller, C.J., Graves, P.J., Dickinson, Randolph, Lamar, Kitchens, Chandler and Pierce, JJ. Procedural History: Dismissal Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 01-30-2009 Appealed from: LEE COUNTY CIRCUIT COURT Judge: James L. Roberts Disposition: The trial court dismissed the plaintiff's claims. Case Number: CV08-045(R)L |
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| Party Name: | Attorney Name: | Brief(s) Available: | ||
| Appellant: | R. W. Whitaker and Monty Fletcher |
MICHAEL N. WATTS, R. BRADLEY BEST |
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| Appellee: | Limeco Corporation and William Kidd | MARGARET SAMS GRATZ, L. F. SAMS, JR. | ||
Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Contract - Statute of limitations - Negotiable instruments - Section 75-3-104 - Section 75-3-118(b) - Section 75-3-109(b) - Section 15-1-49 - Fraudulent concealment - Section 15-1-67 - Corporate liability |
| Summary of the Facts: | William Kidd served as managing director of Limeco Corporation. Beginning in 2001, negotiations began between Kidd/Limeco, the Defendants/Appellees, and R. W. Whitaker and Monty Fletcher, the Plaintiffs/Appellants, in connection with what later became a failed effort to purchase a hockey team in Tupelo. The Plaintiffs maintain that in the course of these 2001 negotiations, Kidd misrepresented to them that Limeco was a corporation with substantial assets. The Plaintiffs further allege that, as a result of Kidd’s misrepresentations, they were fraudulently induced by Kidd to lend Limeco $750,000. Whitaker and Fletcher filed separate complaints against Limeco and Kidd. The Plaintiffs alleged that they had lent Kidd more than $850,000 that had never been repaid. Both complaints alleged claims of breach of promissory notes. Whitaker also alleged that he had been induced to lend Kidd an additional $100,000 and had allowed Kidd to enter into a continuing guaranty when the loan came due; thus, Whitaker’s complaint included both a breach-of-promissory-note claim and breach-of-continuing guaranty claim. The circuit court dismissed both complaints due to defective service. The cases were consolidated, and the dismissal for lack of proper service was affirmed on appeal. However, during the early stages of the appeal, the Plaintiffs filed a complaint against Kidd and Limeco in chancery court, alleging breach of promissory notes, breach of continuing guaranty, fraud, and fraudulent transfer of assets. Due to the alleged fraud, the Plaintiffs sought to pierce the corporate veil in order to include as defendants not only Limeco, but William Kidd, individually. The trial court ultimately found the suit to be time-barred. Finally, by mutual agreement, the parties agreed to transfer this case to circuit court. The trial court entered an order dismissing the complaint on the grounds that the statute of limitations had expired for the breach-of-promissory-note claim, the breach-of-continuing-guaranty claim, and the fraud claim. The Plaintiffs appeal. |
| Summary of Opinion Analysis: | Issue 1: Statute of limitations The trial court dismissed the Plaintiffs’ complaint on the basis that neither of the promissory notes, each in the amount of $375,000, was a negotiable instrument under section 75-3-104 because neither of the notes contained the required “words of negotiability.” As a result, the trial court found that the notes were not subject to the six-year statute of limitations applicable to negotiable instruments under section 75-3-118(b) but instead were subject to the three-year statute of limitations for breach-of-contract claims. The Plaintiffs argue that the notes entered into by Kidd, each in the amount of $375,000, met all of the statutory requirements for negotiable instruments pursuant to section 75-3-104. What the Plaintiffs identify as the “Whitaker note” reads as follows: “On demand, for value received, I promise to pay to R.W. Whitaker . . . The sum of Three Hundred, Seventy-five Thousand Dollars ($375,000).” The written agreement identified as the “Fletcher note” contains identical language. The Plaintiffs argue that this meets the statutory definition of “payable to order” and want the Court to interpret section 75-3-109(b) as defining “payable to order” as follows: payable “to the order of an identified payee,” payable to an identified payee, or payable “to order.” However, interpreting section 75-3-109(b)(ii) as defining “payable to order” as payable to an identified payee or payable to order is contrary to how the majority of jurisdictions interpret the Uniform Commercial Code’s statutory requirements for negotiable instruments. In order to meet the requirements of a negotiable instrument, a paper or instrument generally must be payable to order or to bearer at the time it is issued or comes into the possession of a holder. This means that notes payable simply to a specific payee, and not to the order of the payee or to the payee or order, are not negotiable. Thus, the words “payable to the order of” or payable “to [identified payee] or order” must appear within the instrument in order to qualify it as a negotiable instrument, and since the promissory notes in today’s case do not contain this language, they cannot be deemed to be negotiable instruments. There was no error on the part of the trial court in applying the three-year statute of limitations pursuant to section 15-1-49. Issue 2: Fraud Fraudulent concealment of a cause of action tolls its statute of limitations. Section 15-1-67 governs the tolling of statutes of limitations due to fraudulent concealment. The proper test is whether a reasonable person similarly situated would have discovered potential claims. In alleging fraudulent concealment of a claim, a plaintiff must show some affirmative act or conduct was done and prevented discovery of a claim, and due diligence was performed on their part to discover it. The affirmative act must be designed to prevent discovery of the claim. According to the Defendants, the Plaintiffs failed to assert any subsequent affirmative act of concealment. The Plaintiffs have made a sufficient showing of affirmative acts by Kidd to conceal the Plaintiffs’ fraud claim to warrant a jury determination. Kidd made fraudulent misrepresentations regarding Limeco’s assets in the course of negotiations between the parties as early as 2001. These negotiations culminated in three separate loan agreements, wherein the Defendants received more than $850,000. Kidd presented the Plaintiffs with financial records depicting Limeco as a solvent corporation. The Plaintiffs’ complaint alleged subsequent dealings and communication between the parties, such that a jury determination as to whether the Plaintiffs used due diligence in discovering their fraud claim is necessary. With regard to due diligence, the Plaintiffs deposed Kidd in March 2007, as part of the discovery in the original complaint for the breach-of-promissory-notes and breach-of-continuing-guaranty claims. During his deposition, Kidd admitted to fraudulently misrepresenting Limeco’s assets. The Plaintiffs’ argument that they did not learn of the fraud until March 2007, during the course of Kidd’s deposition testimony is compelling. Thus, the case is reversed and remanded. The Plaintiffs also raise as part of this issue whether the trial court erred in dismissing the breach-of-continuing-guaranty claim. Because the Plaintiffs were aware of the breach of the continuing guaranty as early as 2002 and at the latest in December 2003, when they originally filed suit, the trial court did not commit error in dismissing this claim as being time-barred by the three-year limitations period in section 15-1-49. Issue 3: Corporate liability The Plaintiffs argue that Kidd’s fraudulent misrepresentations while acting as managing director of Limeco give them leeway to pierce the corporate veil and hold Kidd liable for the torts he committed when acting as managing director of Limeco. Because this issue is conditioned upon a showing by the Plaintiffs that their fraud claim was fraudulently concealed from them until 2007, this issue is remanded to the trial court for further proceedings. |
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