No. 01-A-019206CH00220.Court of Appeals of Tennessee, at Nashville.Permission to Appeal Granted by Supreme Court March 1, 1993.
Filed November 18, 1992.
Appeal from the Chancery Court of Montgomery County; Alex W. Darnell, Chancellor.
Carmack C. Shell, Helen O. Young, Clarksville, for plaintiff-appellee.
Timothy K. Barnes, Gregory D. Smith, Clarksville, for appellant, Commerce Union Bank of Clarksville.
CRAWFORD, Judge.
1 Plaintiff, Bonnie Black, sued defendant, Commerce Union Bank of Clarksville, for a declaratory judgment concerning her obligation under a promissory note which she signed and which is now held by the bank.
In 1986, Bonnie Black and Eddie Black were divorced in Montgomery County. The decree awarded Bonnie Black custody of the two minor children of the parties and Eddie Black was ordered to pay monthly child support. The parties’ real estate was awarded to Bonnie Black, but she was required to pay for defendant’s interest in the real estate by executing a promissory note as specifically described in the decree. Pursuant to the decree, Ms. Black executed the promissory note which provides as follows:
PROMISSORY NOTE
FOR VALUE RECEIVED, BONNIE BLACK promises to pay to the order of EDDIE BLACK the sum of TWELVE THOUSAND AND NO/100THS DOLLARS to be paid on or before March 31, 1991, with interest from April 1, 1986 at the simple rate of 7.5 percent per annum. Said interest is not compound interest but is simple interest that is calculated only on the principal amount. BONNIE BLACK is given the privilege of pre-paying this note at any time without penalty.
THIS NOTE IS SECURED BY a Vendor’s Lien Deed of even date herewith from EDDIE BLACK to BONNIE BLACK in the Register’s Office for Montgomery County, Tennessee.
Should at any time EDDIE BLACK fail to make child support payments as provided in the divorce decree of the parties, dated April 22, 1986, then the accrual of interest shall cease and be tolled until such time as all child support payments are made to be current and up to date.
Executed as of the above date.
Eddie Black subsequently assigned the note to Commerce Union Bank and upon receiving notice of the assignment Bonnie Black filed this case seeking a declaratory judgment as to the rights and obligations of the parties and specifically seeking a set-off on her obligation under the note for the amount of child support arrearages owed by Eddie Black, for which she also seeks judgment. Bonnie Black testified that the arrearage in child support was $7,945.56, and she sought a set-off in this amount on the note.
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After an evidentiary hearing, the court entered judgment which held that the promissory note was conditional, thus, not a negotiable instrument, making it subject to the personal defenses of the maker, Bonnie Black. Bonnie Black was awarded a judgment against Eddie Black for $7,687.82 and was granted a set-off in this amount.
Commerce Union Bank has appealed and the first issue for review is whether the trial court erred in not finding that the promissory note was a negotiable instrument.
The bank asserts that the note in question is a negotiable instrument under the Uniform Commercial Code, T.C.A. § 47-3-101 et seq. because it was not conditional and is payable in a sum certain. T.C.A. § 47-3-104(1) (Supp. 1992) provides:
(1) Any writing to be a negotiable instrument within this chapter must:
2 (a) be signed by the maker or drawer; and
(b) contain an unconditional promise or order to pay:
(i) a sum certain in money;
(ii) a sum in money which is determinable by a formula as provided in the writing, whether or not such formula requires the use of extrinsic criteria; or
(iii) a sum of money the amount of which is subject to renegotiation upon either the passage of time or the occurrence of an event.
(c) be payable on demand or at a definite time; and
(d) be payable to order or to bearer.
* * *
T.C.A. § 47-3-106(l)(a) (Supp. 1992) provides:
(1) The sum payable is a sum certain even though it is to be paid:
(a) with stated interest or by stated installments; or
* * *
The note in this case provides for payment of principal and interest, but clearly places a condition on the payment of the interest portion.
A calculation of the amount due requires extrinsic facts in order to make the determination. Official Comments 1 to T.C.A. § 47-3-106 (1979) states:
A stated discount or addition for early or late payment does not affect the certainty of the sum so long as the computation can be made, nor do different rates of interest before and after default
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or a specified date. The computation must be one which can be made from the instrument itself without reference to any outside source,. . . . (emphasis added). Clearly in the case at bar the note is not a negotiable instrument and therefore is subject to the defenses of the maker.
The next issue is whether the trial court erred in not holding that Ms. Black was equitably estopped from claiming that the note is not a negotiable instrument.
The bank asserts that Ms. Black derived a benefit from the note and described the note in the vendor’s lien deed as a “negotiable note.” The bank argues that she derived this benefit and should not now be able to claim that the note is not a negotiable instrument to the detriment of the bank. We must respectfully disagree. The note clearly shows on its face its conditional nature because of the necessity of extrinsic facts to determine the amount due. The bank, when it purchased the note, had knowledge of the note’s terms.
The next issue is whether the trial court erred in granting a set-off because it is an impermissible modification of a property settlement in a final decree of divorce. The bank argues that the provision for an exchange of a promissory note for the real property is an adjudication of property rights and consequently is not subject to modification after the decree becomes final. We do not disagree that an adjudication of property rights cannot be modified after the decree becomes final. However, we do disagree that the situation before us constitutes an adjudication of property rights. Property rights were adjudicated in the final decree, and the promissory note was a payment made at that time pursuant to the final decree. The question before us deals exclusively with the provisions of the promissory note given in payment for an interest in real estate, and does not deal with the final decree itself. This issue is without merit.
3 The final issue for review is whether the trial court erred in allowing a set-off in the amount of arrearage in child support to the obligation of Bonnie Black under the promissory note.
A set-off is defined as “a counter-claim demand which defendant holds against plaintiff, arising out of a transaction extrinsic of plaintiffs cause of action.” Black’s Law Dictionary
1230 (5th ed. 1979); Howard v. Abernathy, 751 S.W.2d 432 (Tenn.App.1988). In the instant case, the obligation Ms. Black claims as a set-off is in fact an obligation imposed by law to the parties’ children and is not a “demand” held by Ms. Black. In Oliver v. Oozkowicz, No. 89-396-II (Tenn.App. May 18, 1990), this Court said:
Conversely, the Court should disallow a set-off against amounts owed by a custodial parent where the set-off represents arrearages in child support payments owed by the noncustodial parent to the children which are nonrelated to the obligation of the custodial parent. To allow a set-off under these circumstances would amount to allowing the custodial parent to take credit for amounts due the children.
Accordingly, that part of the declaratory judgment of the trial court which allows Bonnie Black a set-off on the claim of the bank under a promissory note is vacated and it is declared that
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Commerce Union Bank is entitled to pursue its claim under the promissory note without a set-off by Bonnie Black for child support arrearage.
Costs of the appeal are assessed against the appellee. The case is remanded to the trial court for such further proceedings as may be necessary.
HIGHERS and FARMER, JJ., concur.
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