Background
In 2018, Del and Linda Pumphrey sold the assets of their nurse staffing agency, Priority Nursing Staffing, Inc., to Dedicated Nursing Associates, LLC (“DNA”) for $2,545,000. In addition to cash paid at closing and funds held in escrow, DNA executed a $500,000 promissory note calling for sixteen quarterly payments of $34,673.36 at five percent annual interest. The note authorized the holders to collect a late charge of five percent of any overdue amount if payment was “more than ten (10) days in arrears when paid,” and provided for five percent attorney fees if the note was placed with counsel for collection.
DNA issued its checks on the first and twentieth of each month. The Pumphreys understood each quarterly payment to be due on the first day of the first month of each quarter and collectible without further demand if not received by the tenth. Over four years and sixteen payments, Del Pumphrey repeatedly emailed DNA’s CEO, Melissa Spagnol, to alert her that payments had not arrived; she typically responded that checks were in the mail. On one occasion in June 2019, Del asked that a late fee be included with the overdue payment, but DNA remitted the base installment only and Del deposited it without further protest. All sixteen payments were ultimately made and accepted.
One month after depositing the final payment in July 2022, the Pumphreys sued for $20,804.04 in late charges attributable to twelve installments they characterized as considerably late, plus five percent attorney fees. DNA moved for summary judgment, arguing that the note required only that payments be made within the applicable quarter—not on a specific day—and that the Pumphreys were equitably estopped from collecting late fees because they had accepted every payment without consistent complaint. The trial court agreed on both grounds and dismissed all claims with prejudice.
The Court’s Holding
A five-judge panel of the Second Circuit reversed and remanded by a three-to-two vote. On the contract-interpretation issue, the majority held that the payment dates set forth in the note are not clear and unambiguous and are susceptible to more than one reasonable reading. The note recites sixteen quarterly payments “beginning ninety (90) days after the closing date of June 1, 2018,” without specifying a day certain within each quarter for receipt of payment, and the asset purchase agreement referenced an amortization schedule that was never produced in the summary-judgment record. Because the note was drafted by DNA, any lingering doubt must be resolved against DNA under Louisiana Civil Code article 2056. These unresolved ambiguities precluded summary disposition as a matter of law.
On the equitable-estoppel issue, the majority likewise found that genuine issues of material fact survived. Although Del accepted every late payment, he consistently notified Spagnol of each missed due date and she never disputed the Pumphreys’ understanding of when payments were owed. The majority observed that Del—not DNA—was the party lulled into passivity, in part because he feared that pressing too hard would cause DNA to stop making payments altogether. Under these circumstances, the court held that whether DNA actually changed its position to its detriment in justifiable reliance on the Pumphreys’ conduct remained a triable factual question rather than one fit for summary judgment.
Key Takeaways
- A promissory note that specifies the number and frequency of installments but omits a fixed calendar day for receipt of each payment may be ambiguous and unsuitable for resolution by summary judgment.
- Under Louisiana Civil Code article 2056, ambiguities in a note drafted by the debtor are construed against the drafter.
- Equitable estoppel based on forbearance requires proof that the debtor actually changed its position to its detriment in justifiable reliance on the creditor’s conduct; a creditor who accepts late payments while periodically registering complaints does not automatically lose the right to enforce penalty provisions.
- The absence of a referenced amortization schedule from the summary-judgment record was a significant evidentiary gap that contributed to the court’s finding of ambiguity.
Why It Matters
This decision is a practical reminder that promissory notes in business acquisition transactions must state payment due dates with precision. Parties who rely on separate schedules or attachments should ensure those documents are incorporated by reference and made part of the record; a missing amortization schedule transformed a seemingly routine collections dispute into a triable ambiguity here.
The case also illustrates the limits of the forbearance doctrine in Louisiana. A creditor who accepts late payments is not automatically barred from later asserting penalty clauses—particularly when the creditor’s communications reflect ongoing, if restrained, protest. Buyers and sellers financing business acquisitions through seller-held notes should document their understanding of due dates and late-fee waivers (or the absence of them) in writing throughout the payment period, rather than relying on post-hoc equitable defenses.