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HAMM v. SCOTT, et al. (59870)


HAMM, JR.

v.

SCOTT, et al.


June 11, 1999

Record No. 982076

EDWARD L. HAMM, JR.

v.

JUDITH SUGG SCOTT, ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF HAMPTON

Walter J. Ford, Judge

Present: All the Justices

OPINION BY JUSTICE A. CHRISTIAN COMPTON


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.

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."

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
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.

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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