Yockey v. Kahl

KARWACKI, Judge. This case presents the question of whether a voluntary payment on a promissory note by a co-maker of the note who is no longer obligated on it as a result of a discharge in bankruptcy tolls the statute of limitations on the note as to the remaining obligor. We shall hold that it does not. I From 1977 on, Frank Yockey was president of a succession of home building companies.

The appellant, Mary Ann Yockey, is Mr. Yockey’s mother. She at no time was a stockholder, director, officer or employee of any of her son’s companies, but on occasion, of her own volition, she would visit the corporate offices and sometimes perform tasks such as going through the mail or cleaning. At various times over the years, Mrs. Yockey also loaned money to her son’s companies. Charles J. Kahl, the appellee, worked for a number of years as the plumbing subcontractor for Mr. Yockey’s companies.

Sometime around 1987, Mr. Kahl’s receivables with respect to work performed on one of Mr. Yockey’s projects began to develop some age. Mr. Yockey agreed to prepare a note in the amount of $28,963.00 to reflect that debt. Both Mr. Yockey and the appellant signed the note which contained the following language: “September 3, 1987 We Franklin W. Yockey and Mary Ann Yockey agree to pay to Charles Kahl the sum of $28,963.00 however, if the buyer of the spec house signs a contract with Charles Kahl to complete the plumbing it will reduce the debt to $25,963.00. This debt will be paid upon settlement of property belong ⁶⁷ ing to Frank W. Yockey located at 13819 Cripplegate Road, Maryland 21131.

The debt to be payable at 4125 Cliffvale Road Baltimore, Maryland 21236 without default value received with 10% interest per annum. /s/ Dolores H. Harris [witness] /s/ Frank W. Yockey /s/ Mary Ann Yockey” Under Chapter 7 of the Bankruptcy Code Mr. Yockey received a discharge of pre-petition debts pursuant to an order of the United States Bankruptcy Court dated July 12, 1989. The appellee was included in the schedule of creditors which accompanied Mr. Yockey’s bankruptcy petition. The note matured upon settlement on the sale of Mr. Yockey’s Cripplegate Road residence. That settlement occurred on January 24, 1990.

Sometime in 1991, appellee was working on two jobs for Mr. Yockey. During this period, Mr. Kahl inquired as to when he would be paid on the note. According to his testimony, he was told that he would be paid eventually when some money came in. 1 On July 6, 1992, Mr. Yockey gave appellee a personal check in the amount of $5,000.00. The check bore the reference “Payment on note Sept. 3, 1987.” On May 12, 1993, appellee sued appellant and Mr. Yockey for the amount due on the note.

Judge Alfred L. Brennan, Sr., of the Circuit Court for Baltimore County, dismissed the case against Mr. Yockey on receipt of evidence that his debt to the appellee had been discharged in bankruptcy. At the conclusion of the bench trial, Judge Brennan determined that the July 6, 1992 payment by Mr. Yockey revived the debt as to the appellant, thus avoiding the limitations bar. The court then ordered that a judgment be entered against ⁶⁸ the appellant in the amount of $42,340.52. 2 The appellant filed an appeal from that judgment to the Court of Special Appeals. Prior to review by the intermediate appellate court, we, on our own motion, issued a writ of certiorari.

The appellant argues that the bankruptcy discharge of the debt as to Mr. Yockey terminated the co-obligor relationship between him and his mother, and that, absent that relationship, Mr. Yockey had no authority to acknowledge the debt to Mr. Kahl on behalf of Mrs. Yockey. The appellee argues that, in fact, the co-obligor relationship was not terminated by Mr. Yockey’s discharge in bankruptcy, but that, even if it was, a co -maker relationship is sufficient to find authority in Mr. Yockey to acknowledge the debt on behalf of Mrs. Yockey. II The appellee relies on a series of cases to support his contention that Mr. Yockey’s payment to the appellee tolled the statute of limitations on the note as to the appellant: Burgoon v. Bixler, 55 Md. 384 (1881); Schindel v. Gates, 46 Md. 604 (1877); Ellicott v. Nichols, 7 Gill 85 (1848). None of these cases, however, involved a partial payment by one no longer obligated on the underlying debt.

We hold that it is precisely this continuing, co-obligor relationship, not merely a co-maker status, that provides the basis for finding the authority in one co-maker to acknowledge a debt for another. In Ellicott , the plaintiff had loaned the defendant partnership a sum of money on a note. The partnership was subsequently dissolved. After the applicable period of limitations had expired, one of the former partners allegedly acknowledged the debt, and the plaintiff sued on the amount, arguing that the acknowledgement had operated to remove the limitations bar.

In reversing the judgment of the trial court, we found that the acknowledgement, made after the limitations ⁶⁹ period had expired, was ineffective in removing the bar of limitations because: “[tjhose who formerly occupied the position of joint debtors, covered by a common obligation, no longer stand in that relation to the creditor, or to each other. There is no means of enforcing against them, the barred demand. “The power thus to implicate and bind the firm, is not to be considered as remaining in any one of the partners, after the expiration of the partnership.” Ellicott, 7 Gill at 102-03 . We further remarked that: “[u]ntil the statute had barred the demand, the promisors were subjected to a joint and common responsibility; and under such circumstances it might well be maintained, that a payment made by one of the parties to the note, was a payment made for the benefit of all.” Id. at 104 (citing with approval Atkins v. Tredgold, 2 Barn. & Cress. 23, 107 Eng. Rep. 291 (1823) (explaining Whitcomb v. Whiting, 2 Dougl. 652, 99 Eng.Rep. 413 (1781))) (emphasis added).

We then concluded that: “the decision in Whitcomb vs. Whiting, rested upon the fact, that at the period when the partial payment was made, the Statute of Limitations had not acted upon the demand, and that there was therefore, with respect to the debt, a continuing joint liability. It is upon this hypothesis alone, that one of the joint debtors could be considered as virtually the agent of the others.” Id. at 105 (emphasis added). We further reasoned that: “a payment by one of the makers of a promissory note, might be regarded as a payment by all, because at the time of the payment, the parties were jointly liable for the debt, and one might therefore be considered as the agent of the other, with respect to the debt. “The condition and relation of the parties is changed, as soon as the bar of the statute has become complete.” ⁷⁰ Id. at 106 (emphasis added); see also Schindel, 46 Md. at 615 (repeating our language in Ellicott). Finally, we pointed out that, at least in Lord Tenterden’s opinion: “the acknowledgement made by a partner, who was not himself liable at the time when he made it, was not sufficient to take the case out of the Statute of Limitations, so as to charge his co-partner.” Ellicott, 7 Gill at 106 (citing Martin v. Bridges & Elmore, 3 Car. & P. 83, 172 Eng.Rep. 334 (1828)).

In Schindel , the plaintiff sued on a note on which the principal debtor had paid interest annually for a number of years and had acknowledged the debt shortly before suit was filed. The defendant surety argued that the interest payments and acknowledgement by the principal debtor did not toll the limitations period as to him, because he was only a surety, was not even known to the plaintiff, and never personally acknowledged the debt nor ratified the interest payments. Relying on Ellicott , we found that the acknowledgement and interest payments, made before the limitations period had expired and, therefore, while both the principal debtor and the surety were