Sims v. Hays
1988 WL 16403, 521 So. 2d 730 (1988)
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Rule of Law:
Under Louisiana law, the defense of compensation, or set-off, is not available against a liquidated and due debt, such as a promissory note, when the offsetting debt is unliquidated, disputed, and not capable of prompt and easy proof.
Facts:
- Cynthia Sims and Cynthia Hays were partners in a beauty salon, Whittle Hair Designs.
- Sims alleged that Hays, who managed the business checking account, was withdrawing more than her share of profits and paying personal debts with partnership funds.
- The partners agreed to dissolve the business, and Sims purchased Hays's interest for $4,000.
- On September 2, 1986, Sims executed an unconditional promissory note to Hays for $4,000, due in 30 days, with 10% interest from maturity and 25% attorney fees for collection.
- The dissolution agreement expressly reserved Sims's right to a future accounting of the partnership business.
Procedural Posture:
- Cynthia Sims sued Cynthia Hays in district court for $6,600.31, alleging Hays had misappropriated partnership funds.
- In her petition, Sims acknowledged her $4,000 debt on the promissory note and deposited that amount into the court registry.
- Hays answered, denying the allegations, and reconvened (counter-sued) to collect on the past-due $4,000 promissory note.
- Hays filed a motion for summary judgment on her claim on the promissory note.
- The district court granted Hays's motion for summary judgment, but awarded interest only from the date of the judgment and reduced the contractual attorney's fees to $500.
- Sims, as appellant, appealed the summary judgment to the Court of Appeal of Louisiana, Second Circuit. Hays, as appellee, answered the appeal, challenging the reduced interest and attorney fee awards.
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Issue:
Does a disputed, unliquidated claim for an accounting legally compensate an admitted, liquidated debt on a promissory note, thereby creating a genuine issue of material fact sufficient to preclude summary judgment?
Opinions:
Majority - Judge Norris
No. A disputed, unliquidated claim does not legally compensate an admitted, liquidated debt on a promissory note, and therefore does not create a genuine issue of material fact to defeat a motion for summary judgment. For compensation to take place by operation of law, two people must owe each other sums that are both liquidated and presently due. A debt is liquidated when its correctness is admitted or when it is capable of ascertainment by mere calculation. Here, Sims's debt on the promissory note is liquidated because she admits she owes the principal amount. In contrast, Hays's alleged debt to Sims from the partnership accounting is unliquidated because it is seriously contested by Hays, and proving it would be a 'long and laborious process' involving disputed checks and deposits. Because the debts are not equally liquidated, the defense of compensation is unavailable as a matter of law, and summary judgment was properly granted on the note.
Analysis:
This decision clarifies the 'liquidated' debt requirement for the defense of legal compensation in Louisiana, preventing debtors from using speculative or complex counterclaims to delay payment on undisputed obligations like promissory notes. It reinforces the principle that summary judgment is appropriate when a defense is legally insufficient, even if the underlying facts of the counterclaim are disputed. The case also affirms the judiciary's inherent authority to review and reduce contractually stipulated attorney's fees to ensure their reasonableness, thereby protecting obligors from excessive penalties.
