Promises, Promises: Oral Promises to Pay Another’s Debt are not Enforceable in Tennessee

One of the most common collections questions I get is “I loaned X some money, but didn’t make them sign anything. Can I sue them?”  The simple answer is yes.

As long as the person making the promises is also the borrower, you’re safe. Issues arise, though, when you’re enforcing a promise by a third party to pay the debts of another. This is called a “Guaranty” (or, depending on how old a lawyer you are, a “Guarantee”).

However you spell it, a guaranty has to be in writing to be enforceable.

Under Tennessee’s version of the Statute of Frauds, no party may file a lawsuit “[t]o charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person….  unless the promise or agreement, upon which such action shall be brought, or some memorandum or note thereof, [is] in writing, and signed by the party to be charged therewith, or some other person lawfully authorized by such part  ” See Tenn. Code Ann. § 29-2-101(a)(2).

So, then the question becomes, how formal does a writing have to be? Can it be hand-written? Can it be an email?

Guaranty agreements are strictly construed and, in order find a guaranty, the language must contain the clear and unambiguous intent that the guarantor is agreeing to be liable. For more on guaranties (or guarantees), be sure to check out the Tennessee Supreme Court in 84 Lumber Co. v. Smith, 356 S.W.3d 380, 384 (Tenn. 2011).

In the case of an email, I’d ask “Is the email’s language clear and unambiguous in stating that Y is willing to pay the debts of X?” If so, I think it satisfies the Statute of Frauds.

Changes in Credit Reports May Soon Exclude Outstanding Judgments

The Consumer Data Industry Association is reporting that the three major credit reporting bureaus (i.e.  Equifax, Experian, and TransUnion) are updating how they report certain public record data on consumers’ credit reports.

One of these changes will be that the records must contain “a minimum of consumer personal identifying information (PII): (1) Name, (2) address, and (3) SSN and/or date of birth.”

These changes, which will take place on July 1, 2017, will result in most civil judgments no longer being report on credit reports, since court judgments rarely contain full social security numbers and/or dates of birth.

In fact, in most jurisdictions, personally identifying information like this can’t be allowed on judgments; instead, such information must be redacted.

What does this mean for a bank or other lenders? A loan applicant’s credit report will be less likely to contain all relevant information about debts and liabilities. That’s not good news, say banks.

What does this mean for a judgment debt collector? Not much, since a judgment creditor isn’t making a credit decision, and so negative information on a credit report provides less guidance. On the hand, seeing a list of judgments and liens is still useful, in that they provide a shapshot of a judgment debtor’s overall financial state.

 

 

 

Sure, the Debtor is Foreign, but Is his Bank?

I’ve talked about the process of domestication of judgments, which is basically the process by which you make a judgment from one state enforceable in another state. You see, a judgment awarded in Tennessee can only reach a debtor’s assets located inside the State of Tennessee. So, if you have a judgment against somebody who lives in Texas, you may have to file a second lawsuit in Texas to attach his assets.

But don’t go buy a pair of cowboy boots just yet.

I mean, sure, if he owns land in Texas,  owns a car that’s registered in Texas, or has a million dollars in cash under his Texas bed, then your Tennessee judgment is not going to be effective to execute on those assets. To get those things that are actually in Texas, you need to go through the domestication process, which results in your out of state judgment being recognized by that foreign state as a valid judgment for enforcement in that state.

But, here’s a trick: What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, debtors with accounts at Wells Fargo Bank, National Association and Bank of America, watch out.

All Those Great Recession Judgments May be Expiring Soon

Depending on who you ask, the “Great Recession” resulting from the subprime mortgage crisis began in December 2007 and lasted about two years. So, about ten years ago, I was spending most of my work days working on loan documents for third, fourth, and sometimes fifth mortgages for a local bank who was really, really late to the mortgage boom.

Of course, the impact of this past recession was felt for years afterwards, meaning my spring 2007 HELOCS didn’t go bad until 2010 or 2012. As a result, just a few years later, I was suing and taking judgments against those same borrowers. From 2008 to 2014, I estimate that I obtained at least 500 judgments, ranging in amounts from $2,500 to $5,000,000.

As I like to say, if you were hearing from me, it was bad news.

So, with a drawer full of judgments, this is what keeps me up at night: Those judgments are only valid for ten years, and, if I haven’t collected on them, they expire.

I’m taking about Tenn. Code Ann. § 28-3-110(a)(2), which provides that actions on judgments are only valid for ten years.

So, a good rule of thumb is that, if you received a judgment against someone you haven’t been able to collect in the last ten years, go back and confirm when you were awarded that judgment. If you’re getting close to the ten year mark, you might be running out of time.

(But, not to be too dramatic, I’m going to talk about how to extend that time period soon.)

 

 

Tennessee Courts will give Pro Se Litigants “Some Leeway,” But Not Much

Some of the hardest trials to handle aren’t when there’s a good attorney on the other side. Instead, the toughest cases can be when there’s a non-attorney on the other side, meaning the other party is representing himself.  In the legal world, this is called “pro se” representation.

With a lawyer on the other side, there’s an expectation that they know the rules of civil procedure, the local rules, and the relevant law. As a result, you can expect that you will be able to cut to the chase and narrow the issues.

With a pro se litigant, everything could be at issue and, worse, a pro se party probably doesn’t know the rules of the court, meaning objection deadlines will be missed and all other types of procedural missteps can occur. This places the lawyer and the Judge in a strange situation–do you hold the pro se litigant to same standards as a party who goes to the trouble of hiring a lawyer? Shouldn’t they  be held to that standard?

A fairly recent Tennessee Court of Appeals case (click here to review) considered that issue in a dispute where a property owner was fighting a foreclosing creditor. The Court noted that “there are a multitude of problems with Defendant’s brief,” including a complete failure to comply with the Tennessee Rules of Appellate Procedure.  The Court called the pro se filing “a rambling and, at times, incoherent brief.”

The Court went on to say it “must not excuse pro se litigants from complying with the same substantive and procedural rules that represented parties are expected to observe.” Young v. Barrow, 130 S.W.3d 59, 63 (Tenn. Ct. App. 2003). “It is well-settled that, ‘[w]hile a party who chooses to represent himself or herself is entitled to the fair and equal treatment of the courts, [p]ro se litigants are not . . . entitled to shift the burden of litigating their case[s] to the courts.’” Chiozza v. Chiozza, 315 S.W.3d 482, 487 (Tenn. Ct. App. 2009). However, “[t]he courts give pro se litigants who are untrained in the law a certain amount of leeway in drafting their pleadings and briefs.” Young, 130 S.W.3d at 63.

This is good text to remember the next time a person appears on their own behalf in a matter. This frequently happens in debt collection cases for the obvious reason: if a person can’t pay their bills, then how can they afford to hire a lawyer.

General Sessions Court Refresher

One of the great things about blogging about esoteric issues that come up in my law practice is that, sometimes, I get to consult myself when a legal issue arises.

Like, right now, when I’m preparing for a Davidson County General Sessions trial that starts in an hour, and I’m trying to remember what Tennessee statute allows you to exceed the $25,000 jurisdictional limit in small claims court.

It’s Tenn. Code Ann. § 16-15-501, which allows you to exceed $25,000 in calculating a judgment, where the excess amount is comprised of attorneys fees (and/or court costs and/or discretionary costs).

So, thanks a lot, Creditor Rights 101.

Attorneys Fees Can be Recovered in a Tennessee Lawsuit, but only if the contract or statute allows them

I always tell clients that Tennessee is a creditor friendly state, and it is.

But, just because it’s fair to creditors, doesn’t mean a Tennessee Court will give a plaintiff everything. I’m talking today about attorney fees. The rule in Tennessee is that, unless you have an agreement in writing that you are entitled to recover your attorney fees, a court will not award those fees to you.

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses).

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees.