NO. COA98-1268


Filed: 6 July 1999








Guilford County


{1} Appeal by defendant U.S. Packaging, Inc. from order dated 9 April 1998 by Judge Ben F. Tennille in Guilford County Superior Court. Heard in the Court of Appeals 11 May 1999.

Law Office of Jewel A. Farlow, by Jewel A. Farlow; and Smith Helms Mulliss & Moore, by Bynum M. Hunter, for defendant-appellant.

Adams Kleemeier Hagan Hannah & Fouts, by J. Alexander S. Barrett and Benjamin A. Kahn, for plaintiff-appellee.


{2} U.S. Packaging, Inc. (USP) appeals from the trial court's order granting summary judgment in favor of C.E. Bradley, Jr. (Bradley).

{3} In 1983, Mark C. Speckman (Speckman), Richard D. Hall, Jr. (Hall), Clarence C. Dukeshire (Dukeshire), and Bradley each owned 25 percent of USP.[fn2] In 1984, USP negotiated for the purchase of the packaging division of another company. As a condition of providing financing for this purchase, the parties agree that NationsBank required USP to obtain "an infusion of $500,000.00 in equity or capital." Speckman, Hall, Dukeshire, and Bradley formed a general partnership, and, through that partnership, borrowed $500,000.00 from another bank, Branch Banking & Trust (BB&T). This $500,000.00 was "delivered" to USP in exchange for a promissory note, made out to Speckman, Hall, Dukeshire, and Bradley, in the same amount. The terms of the promissory note, dated 24 September 1984, are as follows:

FOR VALUE RECEIVED the undersigned, jointly and severally, promise to pay to MARK C. SPECKMAN, RICHARD D. HALL, JR., C.E. BRADLEY, JR., and CLARENCE C. DUKESHIRE, or order, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00), with interest from date, at the rate of [NationsBank's] Prime Rate per cent per annum on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States . . . ON DEMAND. . . .

This note is given as consideration for money received . . . .

IN TESTIMONY WHEREOF, each corporate maker has caused this instrument to be executed in its corporate name by its President, attested by its Secretary . . . .


The promissory note was signed on behalf of USP by Bradley (then-president of USP), and attested by Hall (as secretary of USP).

{4} In 1985, Speckman, Hall, Dukeshire, and Bradley entered into written agreements each acknowledging they were individually owed $125,000.00 by USP pursuant to the $500,000.00 promissory note. These agreements expressly subordinated USP's indebtedness to Speckman, Hall, Dukeshire, and Bradley to USP's indebtedness to NationsBank, in consideration of "any loans, advances, payments, extensions of credit, . . . benefits or financial accomodations [sic] heretofore or hereafter made, granted or extended by [NationsBank to USP]." Speckman, Hall, Dukeshire, and Bradley each agreed therein not to sue upon or attempt to collect under the promissory note until USP's indebtedness to NationsBank was satisfied.

{5} In 1987, USP filed suit against Bradley, and Bradley, in his answer, asserted counterclaims seeking the dissolution of USP or, in the alternative, an order requiring USP to purchase his shares at fair market value. At trial, extensive testimony was presented as to the assets and liabilities of USP. Speckman, president of USP, testified that one of USP's liabilities was "a note where we put as I mentioned earlier $500,000.00 into [USP] and we had loaned it to [USP]. So, [USP] in essence owes each one [of] the stockholders $125,000.00." In addition, USP's balance sheets for the years 1985, 1986, and 1987 listed, as a liability, a $500,000.00 note payable to its shareholders. After considering the evidence, the trial court determined the fair value of Bradley's USP shares to be $650,000.00.

{6} In 1995, USP satisfied its indebtedness to NationsBank. Thereafter, in September 1995, Bradley made written demand to USP for payment of his share of the promissory note. In October 1995, Bradley filed this action against USP to enforce the promissory note. USP subsequently filed an answer and counterclaim, and the parties conducted discovery. In June 1997, USP moved for summary judgment, alleging its entitlement to judgment as a matter of law on the following grounds: lack of subject matter jurisdiction, res judicata, collateral estoppel, merger, statute of limitations, failure to allege taxation assessments on the promissory note pursuant to section 105-202, and failure to join necessary parties pursuant to section 25-3-101. Speckman and Hall likewise moved for summary judgment on similar grounds. Also in June 1997, Bradley moved for summary judgment on the ground that there is no genuine issue of material fact and he is entitled to judgment as a matter of law.

{7} At the hearing before the trial court on the parties' motions for summary judgment in this action, Speckman, on behalf of USP, contended the promissory note was entered "for [the shareholder's] best protection, the protection of the partnership, and for tax purposes." Speckman further contended he, Hall, Dukeshire, and Bradley all understood that, upon payment of the $500,000.00 debt owed to BB&T by the four men through their general partnership, the $500,000.00 promissory note payable by USP to Speckman, Hall, Dukeshire, and Bradley "would be extinguished or cancelled [sic]" and no monies would be paid to any of the shareholders pursuant to the promissory note.

{8} After making thorough findings of fact and conclusions of law, the trial court herein denied USP's motion for summary judgment, denied Speckman and Hall's motion for summary judgment, granted Bradley's motion for summary judgment, and ordered USP to pay Bradley $125,000.00, together with interest, pursuant to the promissory note.



{9} The issues on appeal are whether: (I) Bradley's recovery on the promissory note is precluded by (A) res judicata or collateral estoppel, (B) the statute of limitations, (C) section 105-202 of our General Statutes, (D) section 25-3-110 of our General Statutes; and (II) the promissory note is invalid.



{10} In essence, where issues have been fully litigated in a previous action between the parties, "res judicata precludes a subsequent action based on the same claim," and collateral estoppel "bars subsequent determination of the same issue." Edwards v. Edwards, 118 N.C. App. 464, 468, 456 S.E.2d 126, 128 (1995); see also Northwestern Financial Group v. County of Gaston, 110 N.C. App. 531, 539, 430 S.E.2d 689, 694 (noting that, although a plaintiff must seek all the relief to which he is entitled in his first suit, and may not thereafter seek different or additional relief, "both remedies must have been available at the time the first action was commenced"), disc. review denied, 334 N.C. 621, 435 S.E.2d 337 (1993).

{11} In this case, Bradley's current action for enforcement of the promissory note is neither the same claim nor the same issue as was previously litigated in his action to obtain the value of his shares in USP.[fn1] In addition, Bradley had no claim for damages under the promissory note until the note became due and payable and USP refused his demand on the note. At the time of the prior action, pursuant to the terms of the subordination agreement, Bradley could not make demand or bring suit on the promissory note. Since the date of the prior suit, however, the terms of the subordination agreement have been fulfilled, and the promissory note was, accordingly, due and payable on demand. It follows that, even assuming the doctrines of res judicata or collateral estoppel apply, no remedy under the promissory note was available at the time the prior action was commenced because no damages under the note had, at that point in time, been incurred. Bradley, therefore, is not precluded from seeking enforcement of the promissory note on those grounds.


{12} Section 25-3-118 of the Uniform Commercial Code provides:

[I]f demand for payment is made to the maker of a note payable on demand, action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of 10 years.


N.C.G.S. 25-3-118(b) (1995). The "circumstances under which the running of a limitations period may be tolled is left to other law pursuant to [section 25-]1-103." Id., official commentary. Section 25-1-103 provides for the supplementation of the Uniform Commercial Code by "the principles of law and equity." N.C.G.S. 25-1-103 (1995). Principles of law and equity include the principle that no limitations period begins to run against a party until that party is at liberty to sue. See, e. g., Penley v. Penley, 314 N.C. 1, 20, 332 S.E.2d 51, 62 (1985) ("In no event can a statute of limitation begin to run until plaintiff is entitled to institute action."); Glover v. First Union National Bank, 109 N.C. App. 451, 455, 428 S.E.2d 206, 208 (1993); see also 51 Am. Jur. 2d Limitation of Actions 140 (1970) (noting the "broad rule" that whenever a person is prevented from exercising his legal remedy, the statute of limitations is generally tolled).

{13} In this case, Bradley entered into an agreement in 1985 not to bring suit or attempt to enforce the promissory note until USP's debt to NationsBank had been satisfied. USP's debt to NationsBank was satisfied in 1995, and Bradley brought suit on the promissory note in 1995. Accordingly, Bradley is not barred from recovery on the promissory note by the running of the statute of limitations.


{14} Statutory changes generally apply to actions filed on or after the date of the change. See N.C.G.S. 12-2 (1986) (providing that repeal of a statute does not affect actions brought before the repeal); Waddill v. Masten, 172 N.C. 582, 90 S.E. 694 (1916). Section 105-202 previously required a plaintiff to allege or prove that the note at issue had been assessed for taxation in each of the preceding five years; however, section 105-202 was repealed effective 1 January 1995. Although it is generally true that a party may not be deprived of a vested right by repeal of a statute, see Smith v. Mercer, 276 N.C. 329, 337, 172 S.E.2d 489, 494 (1970), USP has not argued that it had any vested right which has been affected by the repeal of section 105-202. This suit was filed in October 1995, some ten months following section 105-202's repeal. Accordingly, Bradley's failure to comply with section 105-202 is irrelevant.


{15} Section 25-3-110 of our General Statutes provides, in relevant part: "If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them." N.C.G.S. 25-3110(d) (1995). If an instrument is payable to X or Y, it is payable alternatively to either X or Y. Id., official commentary. If an instrument is payable to X and Y, however, it is payable "not alternatively," and therefore must be "negotiated, discharged, or enforced only by "X and Y acting jointly. Id. This does not mean, however, that one joint payee may prevent another joint payee from collecting on the instrument. See, e. g., Vance v. Vance, 601 P.2d 605, 607 (Ariz. 1979) ("It does not follow . . . that one uncooperative payee can prevent a co-payee from suing on a note. If one payee could prevent, by inaction, the other payee from collecting from the maker what is due on the note, collusion and fraud would be encouraged to the damage of the legitimate interest of the other payee."). If one joint payee will not consent to be joined as a plaintiff in an action to enforce the instrument, the payee seeking enforcement of the instrument may comply with section 25-3-110 by making the non-consenting joint payee a defendant in the enforcement action. See N.C.G.S. lA-1, Rule l9(a) (1990); Underwood v. Otwell, 269 N.C. 571, 574, 153 S.E.2d 40, 43 (1967); see also Booker v. Everhart, 294 N.C. 146, 156, 240 S.E.2d 360, 366 (1978) (noting that, where all joint payees of the instrument are joined either as plaintiffs or defendants, "the entire matter may be settled at one time, and a single decree may determine the duty of the debtor to each claimant, and protect the rights and interests of each party").

{16} In this case, the promissory note was made payable to Speckman, Hall, Dukeshire, and Bradley jointly. It follows that the promissory note could be "negotiated, discharged, or enforced only by all of them." Because Speckman, Hall, and Dukeshire were unwilling to join Bradley as plaintiffs to enforce payment of the promissory note, they were properly added as defendants in the action, and the promissory note was thereby enforced, within the meaning of section 25-3-ll0(d), by all of them.


{17} Finally, USP contends the promissory note is not a valid debt because there was no consideration for the note and because the parties allegedly agreed to cancel the note once the $500,000.00 debt to BB&T was repaid. We agree with the trial court below, however, that USP is judicially estopped from denying the validity of the promissory note.

Judicial estoppel, or preclusion against inconsistent positions, is an equitable doctrine designed to protect the integrity of the courts and the judicial process. Judicial estoppel forbids a party from asserting a legal position inconsistent with one taken earlier in the same or related litigation. The doctrine prevents the use of "intentional self-contradiction . . . as a means of obtaining unfair advantage in a forum provided for suitors seeking justice."

The purpose of judicial estoppel is to prevent litigants from playing "fast and loose" with the courts and deliberately changing positions according to the exigencies of the moment.


Medicare Rentals, Inc. v. Advanced Services, 119 N.C. App. 767, 769-70, 460 S.E.2d 361, 363 (citations omitted), disc. review denied, 342 N.C. 415, 467 S.E.2d 700 (1995).

{18} In this case USP, through Speckman, its president, testified in the prior action (i.e., the action to determine the value of Bradley's shares in USP) that this promissory note was a valid debt of USP and constituted a liability on USP's balance sheets (thereby reducing the overall value of Bradley's shares). USP may not now, when the validity of the promissory note is no longer favorable to its position, be heard to deny its previous statements made under oath in a court of law.


Judges WYNN and MARTIN concur.

Report per Rule 30(e).


Footnote 1 The corporation was known as D.E.W. Packaging, Inc. in 1983; it was subsequently renamed USP.

Footnote 2 We note that, in a previous unpublished opinion issued by this Court regarding these same parties, we stated: "[Bradley's] liability on [another promissory note] is a different issue than the value of his interest in USP." Bradley v. Hall, 125 N.C. App. 211, 480 S.E.2d 60 (1997). We continue to believe that liability on promissory notes is a different issue from the valuation of Bradley's interest in USP.