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Premier Capital v. Doucette
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2002 ME 83
Docket:	Yor-01-638	
On Briefs:	March 26, 2002
Decided:	May 22,  2002							

	and LEVY, JJ.



	[¶1]  David and Cynthia Doucette appeal from the judgment entered in
the Superior Court (York County, Brennan, J.) awarding Premier Capital, Inc.
the sum of $76,465.44, exclusive of attorney fees and costs, on a claim for
failure to pay a promissory note.  The Doucettes contend that Premier Capital's
claim is barred by the statute of limitations, that there was an accord and
satisfaction, and that there is insufficient evidence to support the judgment. 
We affirm the Superior Court's conclusion that the claim is not time barred
and that there was no accord and satisfaction, but we vacate the judgment and
remand the case to the Superior Court because there is no competent evidence
in the record to support the amount of interest included in the damage award. 
	[¶2]  On July 11, 1986, David and Cynthia Doucette issued a
promissory note (Note) to First NH Bank, Granite State National Bank (First
NH), in the amount of $140,000.  The Doucettes borrowed this amount in order
to purchase a multi-family residence in Berwick and to discharge a preexisting
note and mortgage on a single-family residence they owned.  The Note was
secured by a first mortgage on the multi-family and single-family residences. 
	[¶3]  From July 1986 until June 1990, the Doucettes made timely
payments on their debt.  In July 1990, however, they began having difficulty
meeting their monthly payments.  From July 1990 through July 1991, the
Doucettes continued to make monthly payments that were substantially lower
than the payments required by the terms of the Note.  In July 1991, there was
$135,261.79 outstanding on the Note.  
	[¶4]  Based upon communications David Doucette had with
representatives of First NH in 1991, the Doucettes claim that they reached a
workout agreement with First NH regarding the repayment of the Note whereby
the single-family and multi-family residences were to be sold, and the
Doucettes and David Doucette's father, Robert Doucette, were to sign a new
promissory note for $47,500, secured by David Doucette's commercial garage. 
The single-family and multi-family residences were subsequently sold with the
proceeds being applied, in part, toward the balance owed on the Note.  In
December 1991, the Doucettes and Robert Doucette issued the $47,500 note,
$40,000 of which was applied to the balance owed on the Note.{1}
	[¶5]  In May and August 1992, Gary J. Barr, a loan officer with First
NH, met with the Doucettes to discuss the Doucettes' financial position with
First NH.  These meetings were memorialized in credit memos written by Loan
Officer Barr which indicate that the Doucettes then had three outstanding
loans with First NH, including the Note at issue in this case.  By letter to the
Doucettes dated March 16, 1993, First NH accelerated payment on the
$140,000 Note and demanded payment totalling $33,987.11 consisting of
$6,640.96 in principal, $23,636.23 in accrued interest, and $3,709.92 in late
fees.  Soon thereafter, First NH assigned the Note to Amresco New Hampshire,
Inc., which subsequently assigned the Note to Amresco New Hampshire, L.P.,
which ultimately assigned the Note to Premier Capital.  First NH assigned the
remaining loans and mortgages it had with the Doucettes to Hilco, Inc.  
	[¶6]  On July 22, 1998, Premier Capital filed its complaint against the
Doucettes seeking all sums due under the Note.  Following a jury-waived trial,
the court found that the Doucettes "failed to establish the defense of accord
and satisfaction by a fair preponderance of the evidence," and it found "not
without some difficulty . . . that Premier's accounting with respect to the
amounts currently due under the [N]ote is more likely than not accurate."  The
trial court concluded that "the Doucettes owe[d] Premier a total of $76,465.44
as of March 1, 2001."  Included in this total was interest in the amount of
$23,965.47 accrued as of August 18, 1993.  It is from this judgment that the
Doucettes timely appeal.
A.  Statute of Limitations

	[¶7]  Although the statute of limitations was pled by the Doucettes as
an affirmative defense, it was not expressly addressed in the court's judgment. 
"Generally, a cause of action accrues when a party suffers a judicially
cognizable injury."{2}  The Legislature has established that the statute of
limitations for negotiable instruments is six years.  11 M.R.S.A. § 3-1118
(1995).  Section 3-1118 specifically provides that an action must be commenced
within six years of the acceleration of a note.{3}  11 M.R.S.A. § 3-1118(1).  The
facts indicate that the Note was accelerated by a letter dated March 16, 1993,
and the action was commenced on July 22, 1998.  Thus, the action was
commenced within the applicable statute of limitations.

B.  Accord and Satisfaction 
	[¶8]  The Doucettes contend that an accord and satisfaction arose from
the loan workout agreement discussed in 1991 whereby the original Note was
satisfied from the proceeds generated from the sales of the single-family and
multi-family residences and the new $47,500 loan co-signed by Robert
Doucette.  Premier Capital asserts that a formal workout agreement was never
reached between the Doucettes and First NH and that the outstanding balance
due on the Note was never paid.
	[¶9]  "Accord and satisfaction is an affirmative defense, M.R. Civ. P.
8(c), and the party asserting an accord and satisfaction has the burden of
showing that an accord and satisfaction has occurred by a preponderance of
the evidence."{4}  The existence of an accord and satisfaction is a question of
fact unless it is evidenced by a clear and unambiguous writing.{5}  We will not
disturb the trial court's factual findings unless they are clearly erroneous.{6}  
	[¶10]  Contrary to the Doucettes' assertions, there is competent
evidence in the record that supports the trial court's conclusion that "the
Doucettes have failed to establish the defense of accord and satisfaction by a
fair preponderance of the evidence."  Loan Officer Barr testified that although a
workout arrangement was proposed, it was never formalized, and the Doucettes
never paid the deficiency.  Lawrence R. Guay, a former Vice-President and
commercial loan officer with First NH, testified that "[t]here was no written
agreement or verbal [agreement]" that First NH would waive the outstanding
principal and/or interest balance from the Note.  Internal bank documents
prepared by Barr and Guay also indicate that First NH and the Doucettes were
negotiating a workout agreement but that an agreement was never finalized.  In
light of this evidence, the trial court's conclusion that the Doucettes failed to
establish an accord and satisfaction by a fair preponderance of the evidence
was not clearly erroneous.
C.  Sufficiency of the Evidence

	[¶11]  The Doucettes assert that there was insufficient evidence in the
record to support the court's findings regarding the amount due to Premier
Capital under the Note.  Premier Capital argues that the award of $76,465.44
accurately reflects its damages and that the evidence supports such an award. 
Our review of the trial court's factual findings is limited to a review of the
record to determine whether competent evidence exists to support the trial
court's factual conclusions.{7}  Competent evidence is "relevant evidence [that] a
reasonable mind might accept as adequate to support a conclusion."{8}

	1.  Interest Accrued as of August 1993
	[¶12]  Premier Capital submitted several exhibits that contain
information regarding the amount of principal, interest, and late fees due in
the period following the refinancing and pay down of the obligation by the
Doucettes in 1991 and 1992.  They establish that $6,640.96 was owed as
principal, and $3734 was owed as late fees as of August 18, 1993.  The evidence
is in conflict, however, concerning the amount of outstanding interest due as
of August 1993.
	[¶13]  An accounting of the loan prepared by Premier Capital (Court
Exhibit #1) reported that as of August 12, 1993, the total balance due for
principal, interest, and late fees was $22,162.03.  This exhibit reflects that the
rate of interest employed by Premier Capital varied as frequently as month to
month and included the monthly compounding of interest.  The monthly
adjustment of the rate of interest, however, is contrary to the terms of the Note
which called for a single annual adjustment of the rate of interest in July of
each year.  A separate accounting introduced by Premier Capital (Telephone
Conference Exhibit #1) showed that, as of August 18, 1993, the total
outstanding amount for principal, interest, and late fees was $34,340.43.  None
of Premier Capital's witnesses professed to have personal knowledge as to the
amount of interest that had accrued and remained unpaid as of August 1993. 
The court ultimately relied upon Telephone Conference Exhibit #1 in arriving
at the amount of damages awarded in the judgment.{9}
	[¶14]  Telephone Conference Exhibit #1 reflected the following amounts
outstanding as of August 18, 1993: principal in the amount of $6,640.96, late
fees in the amount of $3734, and accrued interest in the amount of
$23,965.47.  The only information contained in the exhibit that explains how
the accrued interest was determined is a photocopy of a handwritten note
dated November 8, 2000, written by Loan Officer Barr and addressed to
"Randy."  The handwritten note states in its entirety:  "According to an
assistant in our workout department, the $23,965.47 transaction done on
August 18, 1993, represents the interest balance that was cleared from our
books when the loan was sold to Hilco."  The substance of the handwritten
note was not the subject of testimony, nor was the identity of the "assistant"
ever revealed to the court. 
 	[¶15]  The trial court erred in relying upon this evidence as the basis
for determining that Premier Capital was entitled to $23,965.47 of accrued
interest as of August 18, 1993.  The handwritten note states that the Note was
sold to Hilco, Inc.  It is undisputed, however, that although First NH assigned
other notes and mortgages it held from the Doucettes to Hilco, Inc., the
$140,000 Note was never sold to Hilco, Inc.  The interest balance of $23,965.47
that First NH cleared from its books on August 18, 1993, upon the sale of a
note to Hilco, Inc., cannot be competent evidence of the interest balance, if
any, associated with the Note which is the subject of this action.  Because
there is no competent evidence in the record regarding the amount of interest,
if any, that was outstanding as of August 18, 1993, it was clearly erroneous for
the trial court to include the $23,965.47 of interest in the judgment.
	2.  Interest Accrued Subsequent to August 1993

	[¶16] The trial court's determination of interest accruing subsequent to
August 18, 1993, reflects that it compounded interest on a monthly basis.  The
Doucettes contend that the Note does not authorize the compounding of
interest in arriving at a determination of damages in this case.  We agree.
	[¶17]  As a general rule, "compound interest cannot be recovered where
the parties do not expressly promise to pay it."{10}  The Note provided for an
initial rate of interest of 11.50% per annum, subject to annual rate
adjustments, and further provided that upon maturity, "whether by demand,
acceleration or otherwise," the entire principal balance together with accrued
interest "bear[s] interest at the same rate of interest set forth hereinabove." 
This provision authorizes the accrual of interest upon any principal and
accrued interest that is owing as of the date the Note reaches maturity.  It
cannot be construed as authorizing the compounding of interest thereafter,
and the record otherwise provides no support for imputing the same.{11}
	[¶18]  We affirm the trial court's findings that the Doucettes failed to
establish the defense of accord and satisfaction by a preponderance of the
evidence and that, as of August 18, 1993, the amount of outstanding principal
and late fees was $6,640.96 and $3734, respectively.  In addition, we affirm the
trial court's implicit finding that this action is not barred by operation of the
applicable statute of limitations.  We vacate, however, (1) the award of any
interest accrued as of August 18, 1993, because it is not supported by
competent evidence in the record, and (2) the award of interest subsequent to
August 18, 1993, because it was premised, in part, upon the amount of interest
the court determined was due as of August 18, 1993, as well as upon
subsequent compounding of interest.
	[¶19]  In accordance with the express terms of the note, the principal
amount due of $6,640.96 as of August 18, 1993, bears interest at the annual
rate of interest provided for in the Note as adjusted in July of each year.  The
case is remanded to the trial court for a redetermination of interest on the
outstanding principal balance of $6,640.96 from August 18, 1993, forward. 
According to the terms of the Note, the late fees of $3734 are not subject to
interest, but should be included in the final determination of damages.  The
trial court received evidence as to the annual adjustments to the rate of
interest for the period July 1993 through July 2000; however, in order to
determine the interest due on the outstanding balance of $6,640.96, the court
will be required to receive additional evidence to permit it to determine the
annual adjustments to the rate of interest up to the date of the judgment.  In
addition, the calculation of interest should be based upon simple interest. 
	The entry is:
Judgment affirmed in part and vacated in
part.  Remanded to the Superior Court for
a redetermination of damages consistent
with this opinion.
Attorney for plaintiff: Randall T. Pratt, Esq. 501 Islington Street Portsmouth, NH 03801 Attorney for defendants: Mark A. Kearns, Esq. P O Box 1528 Wells, ME 04090
FOOTNOTES******************************** {1} . It appears that the balance was placed in an escrow account. {2} . Dunelawn Owners' Ass'n v. Gendreau, 2000 ME 94, ¶ 11, 750 A.2d 591, 595. {3} . The statute provides in pertinent part: Except as provided in subsection (5), an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within 6 years after the due date or dates stated in the note or, if a due date is accelerated, within 6 years after the accelerated due date. 11 M.R.S.A. § 3-1118(1). {4} . E.S. Herrick Co. v. Maine Wild Blueberry Co., 670 A.2d 944, 946 (Me. 1996). {5} . "Accord and satisfaction may exist as a matter of law if an amount is tendered on a clear and unambiguous written condition that it be accepted in full settlement of all claims pending between the parties and the claimant accepts payments of the amount tendered." Id. at 946 (quotations omitted). {6} . McGraw v. S.D. Warren Co., 656 A.2d 1222, 1224 (Me. 1995). {7} . Stickney v. City of Saco, 2001 ME 69, ¶ 13, 770 A.2d 592, 600. {8} . Shone v. Maine Employment Sec. Comm'n, 441 A.2d 282, 284 (Me. 1982). {9} . At the end of the second and final day of trial, the court stated that in order to decide the case it would need to receive "the bank's calculations, if they exist." Subsequently, Premier Capital submitted additional exhibits, one of which was Telephone Conference Exhibit #1, that were received in evidence following a telephone conference between the court and counsel. The court's Judgment reflects that the trial justice relied upon calculations presented in Telephone Conference Exhibit #1 in determining the amount of damages to award Premier Capital. {10} . Bradley v. Merrill, 91 Me. 340, 346, 40 A. 132, 133 (1898); see also Coupounas v. Madden, 514 N.E.2d 1316, 1322 (Mass. 1987). {11} . The only support offered by Premier Capital in its brief on appeal for the monthly compounding of interest is its statement that "[t]he Note allows the capitalization of interest." The only direct reference to this issue in the trial record is the following testimony from Loan Officer Barr who, when asked to compare Court Exhibit #1 with other evidence presented in an attempt to explain the discrepancies regarding the amount of unpaid interest, responded: "I'm still trying to figure out -- it looks like each interest payment, or each interest accrual was added onto the principle [sic] balance, is that correct? No. I don't understand how --[.]" It appears from this testimony that Loan Officer Barr could not explain why interest was added to the principal balance on a monthly basis.