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Mrozek v. Mrozek

March 17, 1998


Appeal by defendant from orders entered 5 June 1996 and 12 July 1996 by Judge James R. Fullwood in Wake County District Court. Heard in the Court of Appeals 6 January 1998.

The opinion of the court was delivered by: Eagles, Judge.

The plaintiff and defendant were married on 20 August 1977, separated on 31 May 1994, and divorced on 9 June 1995. An equitable distribution hearing was held on 11 December 1995 and the court entered judgment on 5 June 1996.

The parties' primary asset was the marital residence located in New Hill, North Carolina. At the time of the equitable distribution hearing, plaintiff resided there with the parties' two minor children. The parties presented conflicting evidence at trial as to the value of the residence. The court valued the home at $199,700.00 as of 31 May 1994, the date of separation, and at $210,000.00 as of 11 December 1995, the date of trial.

Defendant introduced evidence at trial that the parties borrowed $25,000.00 from the defendant's parents and he signed an unsecured promissory note to his parents on 28 October 1986. The money was used to pay some of the cost of constructing the marital residence. Defendant testified that he did not discuss the loan with plaintiff or ask her to co-sign the note. The note was not signed by plaintiff. No payments have ever been made to the defendant's parents to satisfy the note. The amount due on the note at separation was $45,961.48 including interest. Defendant testified at trial that the loan was a valid debt and that he intended to repay it with interest under the terms of the note. The court found that the debt had been a marital debt, but of no value as of the date of separation. The court determined that the note was no longer enforceable because of the running of the statute of limitations.

The trial court concluded that an unequal division of the marital property in favor of plaintiff was equitable and awarded plaintiff $62,802.45 and the defendant $47,377.29 from the net marital estate. To facilitate the distribution, the court divided the assets and debts of the estate so that plaintiff received $79,708.19 and defendant $30,471.55 in assets, and ordered plaintiff to pay a distributive cash award of $16,905.74 to the defendant.

The defendant moved to amend the judgment and for new trial on 14 June 1996. Defendant asserted as grounds for the motions that there was newly discovered evidence which the defendant could not have discovered and produced at trial and that the plaintiff by her evidence at the hearing had misled the court and misrepresented the facts. The court denied the motions on 12 July 1996. Defendant appeals.

We first consider whether the trial court erred in finding that the marital debt owed to defendant's parents had no value as of the date of separation because it was not legally enforceable because of the running of the statute of limitations period with no payments and no acknowledgment of the debt. In an equitable distribution action "the trial court is required to classify, value and distribute, if marital, the debts of the parties to the marriage." Miller v. Miller, 97 N.C. App. 77, 79, 387 S.E.2d 181, 183 (1990)(citing Byrd v. Owens, 86 N.C. App. 418, 424, 358 S.E.2d 102, 106 (1987)). Plaintiff argues that in determining the value of a marital debt, consideration of its legal enforceability is essential. Defendant contends that the court was without jurisdiction to make a determination as to the enforceability of the promissory note. Defendant argues that the defense of statute of limitations is an affirmative defense available only by answer and can only be raised against the holder of the promissory note and could not be pled against the defendant. Accordingly, defendant contends that once the debt was found by the trial court to be a marital debt it should have been distributed in the judgment. After careful consideration of the record, briefs and contentions of both parties, we reverse.

The promissory note at issue here was not under seal and was subject to a three year statute of limitations. G.S. 1-52(1). The note does not state a fixed date or definite time of payment and is therefore payable on demand. G.S. 25-3-108. "The statute of limitations on an action on a promissory note payable on demand begins to run from the date of the execution of the note." Wells v. Barefoot, 55 N.C. App. 562, 566, 286 S.E.2d 625, 627 (1982)(citations omitted). No payment had been made on the note. Accordingly, the statute of limitations began to run when the note was executed on 28 October 1986.

The running of the statute of limitations, however, does not extinguish a debt, but instead provides a defense to its collection. See Citizens Ass'n for Reasonable Growth of Washington, N. C. v. City of Washington, 45 N.C. App. 7, 12, 262 S.E.2d 343, 346, cert. denied, 300 N.C. 195, 269 S.E.2d 622 (1980). Indeed, a debtor's failure to assert the statute of limitations constitutes a waiver of that defense. Miller v. Talton, 112 N.C. App. 484, 487, 435 S.E.2d 793, 796 (1993).

In this case, the trial court found the note representing a loan from defendant's parents to be a marital debt. The trial court further found as fact that defendant "acknowledged that he owed the money due under the terms of the promissory note and he was obligated to pay his mother under the terms of the promissory note," and defendant's mother "expected repayment." On this record, therefore, there is no evidence that defendant intends to assert a statute of limitations defense to the collection of the debt; the unequivocal inference is that he would not do so. Accordingly, the debt was enforceable and the trial court erred in ruling otherwise. Because there is no dispute as to the amount due on the debt at the time of separation, $45,961.48, on remand the debt must again be similarly valued.

Plaintiff additionally argues that "`loans from close family members must be closely scrutinized for legitimacy.'" Geer v. Geer, 84 N.C. App. 471, 475, 353 S.E.2d 427, 430 (1987)(quoting Allen v. Allen, 287 N.C. 501, 507, 339 S.E.2d 872, 876 (1986). However, any concerns the trial court may have with respect to the fact that this marital debt is owed to defendant's parents or that defendant is the sole signatory and may have an affirmative defense to repayment are more properly treated as distributional factors. See G.S. 50-20(c)(12)(requiring the trial court to consider "ny other factor which the court finds to be just and proper" in making an equitable distribution). Accordingly, the order of the trial court is reversed and remanded for the valuing of this debt and the entry of a new distributional order.

We next consider whether the trial court erred in its finding concerning the fair market value of the marital residence. Defendant claims that the trial court abused its discretion in valuing the marital home as of the date of separation, 31 May 1994, at $199,700.00 because there was evidence that the value of the marital home at separation was $245,000.00 and $250,000.00 at the time of trial. Defendant argues that plaintiff secured a loan in May 1996 based on an appraisal value of $250,000.00, and that plaintiff would not have made application for a loan of $225,000.00 on 19 April 1996 unless plaintiff believed that the property had a value of $250,000.00. Defendant also argues that insurance coverage on the house was and had been $248,000.00 and that this coverage had been specified by the insurance company, not by the parties. Accordingly, defendant contends that with this evidence before the court it was an abuse of discretion for the trial court to find that the value of the residence at separation was $199,700.00. We note that the loan was obtained two years after separation, five months after the hearing and the month before judgment was signed. We also note that plaintiff's lender chose the appraiser and that defendant's witness at the hearing was the lender's choice. We are not persuaded that the trial court abused its discretion in valuing the marital residence as of the date of separation, two years earlier.

In Lawing v. Lawing, 81 N.C. App. 159, 344 S.E.2d 100 (1986) we stated that:

The General Assembly has committed the distribution of marital property to the discretion of the trial courts, and the exercise of that discretion will not be disturbed in the absence of clear abuse. Accordingly, the trial court's rulings in equitable distribution cases receive great deference and may be upset only if they are so arbitrary that they could not have been the result of a reasoned decision. The trial court's findings of fact, on which its exercise of discretion rests, are conclusive if ...

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