Present: All the Justices
EDWARD L. HAMM, JR.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 982076 June 11, 1999
JUDITH SUGG SCOTT, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF HAMPTON
Walter J. Ford, Judge
This appeal stems from the execution of two promissory
notes. Part of the consideration for the second note was the
promise to forebear attempts to collect on the first note. The
sole question on appeal is whether the trial court erred in
refusing to enforce the second note. We answer this query in
the affirmative and will reverse.
We shall recite the facts, some of which were disputed, in
accordance with the findings of the trial court. In October
1989, appellant Edward L. Hamm, Jr., the plaintiff below, agreed
to lend $16,080 to appellee Newport Graphics, Inc., a defendant
below. Appellee Judith Sugg Scott, the other defendant below,
was president of Newport Graphics and a practicing attorney at
law. C. Waldo Scott, her father-in-law, was the corporate
secretary. The corporation, involved in the printing business
associated with the Virginia Lottery, was in "economic
distress."
The first promissory note in issue here was drafted by
defendant Scott; it was dated October 27, 1989, was payable to
the plaintiff's order, and was made by Newport Graphics. The
note, executed by the Scotts on behalf of the corporation,
provided for their personal liability as guarantors. The note
was for the principal amount of $16,080 with interest at the
rate of 11.5% per annum, and provided for payment of principal
and interest in 36 equal monthly installments with a final
"balloon" payment. It also provided that, in the event of
default, the holder could declare the entire unpaid balance
immediately due and payable. On October 31, 1989, the plaintiff
delivered a personal check payable to Newport Graphics in the
principal amount of the note.
The corporation failed to pay the note in accordance with
its terms. Between October 1989 and January 1, 1992, the
plaintiff received only one payment ($527.78) on the obligation.
This default, and information received by the plaintiff that C.
Waldo Scott was disposing of some of his assets, prompted
preparation and execution of the second note.
As a "courtesy" to defendant Scott, the plaintiff advised
her he was prepared to "move quickly" against her father-in-law
to collect on the first note because the elder Scott had the
financial ability to pay the amount owed. She requested
"forbearance" on the plaintiff's part against the father-in-law
and offered to "draft something and do some things to assure"
that plaintiff, a non-lawyer, was paid.
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Defendant Scott also drafted the second note; it was dated
January 15, 1992, and was made by her individually payable to
plaintiff's order in the principal amount of $16,000, plus
interest, later stipulated to be at the rate of 8.8% per annum.
This note provided for payment in monthly installments during
the period 1992-1998. It also provided that payment of the note
in accordance with its terms would "extinguish all obligations,
debts, accounts and notes of Newport Graphics, Inc. with the
Holder hereof." The plaintiff testified that during "the
discussion" about the note, he stated to defendant: "If you do
exactly what this note, the second note says, then I will agree
that it will extinguish, but you must make every payment and do
it as it occurs. If not, I will collect under both notes."
Plaintiff received only five payments under the second
note. This litigation ensued.
In December 1996, plaintiff filed a motion for judgment,
later amended, against defendants seeking to enforce both notes.
While the action was pending, a sum to pay the first note was
deposited on behalf of Newport Graphics with the clerk of court.
Following an April 1998 bench trial, at which only
plaintiff and defendant Scott testified, the court found that
"Note No. 2 was given as a forbearance." The court also found,
however, "that the second note is not collectible. Mr. Hamm can
only collect his money once, cannot collect it twice."
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In a July 1998 order, the trial court entered judgment on
the first note against both defendants and "denied" the
plaintiff judgment on the second note. The plaintiff appeals
that portion of the judgment order which refused to enforce the
second note.
Only defendant Scott has appeared on appeal. She contends
the trial court correctly denied judgment on the second note.
She argues "[t]here is no evidence of any meeting of the minds
of the parties to forbearance and there is nothing within the
conduct of these parties to imply a forbearance for Note II."
She urges that plaintiff should not be "unjustly enriched" by
collecting from her on two notes for the sum plaintiff "loaned"
under the first note. We disagree with the defendant.
A promise to forebear the exercise of a legal right is
adequate consideration to support a contract. Greenwood
Assocs., Inc. v. Crestar Bank, 248 Va. 265, 268, 448 S.E.2d
399, 402 (1994). The agreement to forebear does not require a
writing but may be implied from the parties' conduct and the
nature of the transaction. Id. at 269, 448 S.E.2d at 402;
Troyer v. Troyer, 231 Va. 90, 94, 341 S.E.2d 182, 185 (1986).
In the present action, the trial court, in ruling for the
defendant, found as a fact that the parties, by their words and
by their conduct, made an agreement that plaintiff would not
proceed to enforce the first note against the father-in-law if
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the defendant would execute a note in his favor. The evidence
fully supports this ruling of forbearance, and the defendant's
present argument to the contrary is completely at odds with the
facts developed at trial.
The second note is an independently valid contractual
obligation on its face. Therefore, it must be enforced
according to its terms because plaintiff agreed to a forbearance
only if he could enforce both notes in the event of a default on
the second note.
And, the plaintiff will not be "unjustly enriched" by
enforcement of the second note. Upon the theory of implied or
quasi-contract based on equitable principles, the law will not
allow a person to be unjustly enriched at the expense of
another. Kern v. Freed Co., 224 Va. 678, 680-81, 299 S.E.2d
363, 364-65 (1983). This is not such a case. By fulfilling his
agreement not to collect from the father-in-law in late 1991 and
early 1992 on the first note, plaintiff was denied the
opportunity to invest during the succeeding years the
approximately $20,000 then due on the note. In order to reap
the benefit of the bargain for which he had contracted,
plaintiff must be allowed to enforce the second note pursuant to
the understanding that if the second note was not paid, he could
collect under both notes.
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Accordingly, that portion of the judgment order that denied
plaintiff recovery on the second note will be reversed. The
case will be remanded with direction that the trial court
compute the amount due under the terms of the second note and
enter judgment on that note in favor of the plaintiff.
Reversed and remanded.
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