JB Mortgage Co., LLC v. Ring , 90 Mass. App. Ct. 93 ( 2016 )

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15-P-1258 Appeals Court
JB MORTGAGE CO., LLC vs. JORDAN L. RING, THIRD, & another.1
No. 15-P-1258.
Middlesex. May 18, 2016. - August 26, 2016.
Present: Katzmann, Carhart, & Sullivan, JJ.
Guaranty. Limitations, Statute of.
Civil action commenced in the Superior Court Department on
March 4, 2014.
The case was heard by Peter B. Krupp, J.
Michael P. Utke (Steven F. Smoot with him) for the
plaintiff.
Luke Rosseel for Jordan L. Ring, III.
KATZMANN, J. The plaintiff, JB Mortgage Co., LLC, appeals
from a judgment of the Superior Court dismissing its action to
enforce defendant Jordan L. Ring, III's guaranty of a promissory
note secured by a mortgage on real property. The trial judge
1
Edward C. Simonian. The proceedings against Simonian were
stayed as a result of his bankruptcy and were ultimately
dismissed by the plaintiff. Simonian is not a party to this
appeal.
2
found that the plaintiff's suit was barred by the applicable
statute of limitations because it was filed more than twenty
years after a default existed on the underlying note. The
central issue before us is when the cause of action on the
guaranty of the note accrued. We affirm.
Background. On July 21, 1988, Edward C. Simonian, as
trustee of the DX Trust (trust), executed a promissory note in
favor of Bank Five for Savings (bank) in the face amount of
$400,000. Under the note, the trust was required to make
monthly payments of principal and interest, with all remaining
unpaid balances due two years from the date of execution. In
addition to other penalties for failure to make timely payments,
the note provided that, "If default be made in the payment of
any installment under this note, or if there is a failure to
carry out the terms and conditions of the mortgage or any other
instrument given as security for this note, . . . the entire
principal sum and accrued interest shall at once become due and
payable without notice at the option of the holder of this
note."2 The note was secured by a first mortgage on commercial
property in Hull.
The note was also backed by a guaranty executed by Simonian
and Ring under seal the same day, July 21, 1988. In pertinent
part, the guaranty stated:
2
See note 9, infra.
3
"[T]he undersigned hereby guarantees to the
[b]ank the prompt payment and the faithful
performance and observance of every liability,
obligation, covenant and condition . . . to be
paid, performed or observed by the [trust] under
said [p]romissory [n]ote, [r]eal [e]state
[m]ortgage and [s]ecurity [a]greement,
[a]ssignment of [l]eases and [r]entals, and
[f]inancing [s]tatement.
"The liability of the undersigned hereunder is
direct and unconditional, and joint and several,
and the [b]ank shall not be required to pursue or
exhaust any of its rights or remedies against the
[trust], or any other guarantor or endorser . . .
or to resort to any security before enforcing
this [g]uaranty against any of the undersigned."
On February 28, 1991, the bank and the trust agreed to
extend the term of the note until July 21, 1994, and to increase
the interest rate.3 Thereafter, the bank went into liquidation
and, on September 20, 1991, the Federal Deposit Insurance
Corporation (FDIC) became the liquidating agent. On May 26,
1994, the FDIC foreclosed on the property secured by the
mortgage, selling it for $165,000 and leaving a substantial
deficiency. As of December, 1995, the trust still owed an
outstanding balance of $362,193.26 with a total amount then due
of $417,591.53. The interest on the debt was continuing to
accrue at 11.75 per cent annually.
3
By its terms, the guaranty was not to be affected by any
modification or alteration of the underlying note or related
agreements, to which the guarantors were deemed to have
assented. In any event, Ring and Simonian each individually
consented to the modification as guarantors.
4
Pursuant to a chain of assignments from the FDIC through
several intermediary holders, the trust's debt was ultimately
acquired by the plaintiff. The plaintiff commenced this action
on March 4, 2014, to, inter alia, enforce the guaranty against
Ring.
In an October 8, 2014, memorandum of decision and order on
various pending motions, including the parties' initial cross
motions for summary judgment, the judge initially concluded that
the action was timely under the applicable twenty-year statute
of limitations of G. L. c. 260, § 1, whether measured from the
modified due date on the note or the date of the foreclosure.
The judge, however, denied summary judgment on the basis that
there was a material dispute of fact whether the assignments in
the chain leading to the plaintiff's acquisition of the trust's
debt included the guaranty.
After the parties had once again cross-moved for summary
judgment, the judge concluded in a memorandum and order dated
April 1, 2015, that the chain of assignments was sufficient to
enable the plaintiff to enforce the guaranty, but questioned the
correctness of the statute of limitations analysis in his
previous decision. Specifically, the judge found that if the
foreclosure of the security was accomplished by May 26, 1994,
there was "compelling weight" to the inference that the trust
must have been in default prior to March 4, 1994, which would
5
have been more than twenty years before the plaintiff commenced
this action. Given the terms of the guaranty, the judge
reasoned that a cause of action would have accrued and the
statute would have begun to run upon the failure of the trust to
make a payment when due or meet some other obligation under the
note. The judge, however, yet again denied summary judgment
because, despite the compelling inference, the record was not
sufficient to definitively resolve the factual question of when
the default took place.
Although the case was marked for trial, the parties agreed
to treat a final pretrial conference hearing as a jury-waived
trial. Based on that proceeding, the judge found that by June
21, 1993, the note was already in default. Accordingly, the
judge ruled that the plaintiff's complaint was barred by the
applicable twenty-year statute of limitations.
Discussion. 1. Standard of review. The parties agree on
the facts as recited and that the plaintiff's action is subject
to the twenty-year statute of limitations applicable to
contracts under seal pursuant to G. L. c. 260, § 1. The sole
point of disagreement is the accrual date of the cause of
action, a legal question that we review de novo based on the
undisputed facts. See Crocker v. Townsend Oil Co., 464 Mass. 1,
5 (2012).
6
2. Accrual date. Although the plaintiff initially
contended in its brief that the accrual date should be
determined with reference to a now-repealed provision of the
Uniform Commercial Code (UCC), it conceded at oral argument that
the UCC was inapplicable to the personal guaranty at issue here,
which is a separate contract and not a negotiable instrument.4
The plaintiff nonetheless insists that the cause of action under
the guaranty could not have accrued until the date of the
foreclosure sale at the earliest. We disagree.
"The terms of the guaranty and of the note generally
control when the claim against the guarantor accrues, typically
either from the point at which the primary maker defaults on the
guaranteed note or at some later point when a demand has been
made on the guarantor for payment." Beckley Capital Ltd.
Partnership v. DiGeronimo, 184 F.3d 52, 58 (1st Cir. 1999).5 See
Phoenix Acquisition Corp. v. Campcore, Inc., 81 N.Y.2d 138, 141
(1993) ("The contractual language fixes the boundaries of the
legal obligation of the guarantor"). Thus, the statute begins
to run on different guaranties at different times. See, e.g.,
National Shawmut Bank of Boston v. Fitzpatrick, 256 Mass. 125,
4
Accordingly, we do not address the plaintiff's arguments
under the former G. L. c. 106, § 3-122.
5
The plaintiff does not contend that its status as a
downstream assignee of the FDIC affects the limitations period
here. See Beckley Capital Ltd. Partnership, supra at 55.
7
131 (1926) (statute of limitations on guaranty securing payment
of note payable on demand begins to run on date of execution of
guaranty); McDonald v. National Enterprises, Inc., 262 Va. 184,
192-193 (2001) (statute of limitations did not begin to run
until demand was made where guarantor agreed to pay all sums
owed by borrower when in default "upon demand by the [l]ender,
without notice other than such demand").
Here, the defendant guaranteed prompt payment and faithful
performance of every condition under the note and specifically
relieved the holder from having to pursue or exhaust any rights
or remedies against the trust or the security before enforcing
the guaranty. As the Supreme Judicial Court explained as long
ago as Roth v. Adams, 185 Mass. 341, 343 (1904), where the
"punctual performance on the part of the [principal] of the
covenants of the [contract] was guaranteed," failure by the
principal to make payment "at the time when it became due and
payable would be a breach of his covenant, and a cause of action
would at once accrue to the [obligee] against the defendant."
Accordingly, the cause of action against the defendant accrued
upon the trust's default.
The plaintiff contends that the cause of action against the
guarantor could not have accrued until after the foreclosure
sale because the amount of any deficiency remaining
postforeclosure could not have been determined at that time.
8
This argument ignores the express terms of the guaranty, which
provided that the holder need not "pursue or exhaust any of its
rights or remedies against the [trust]" or "resort to any
security before enforcing this [g]uaranty against" Ring.
"[W]hile [Ring] might have made his promise to pay contingent on
the failure of his principal to pay any judgment the [note
holder or its assignee] might recover if he failed to keep this
covenant, it is a sufficient answer to say that he did not do
so, but was content to make his liability unconditional and
absolute." Ibid. See Seabury v. Sibley, 183 Mass. 105, 107
(1903) ("A creditor is not bound to sue the principal debtor,
but has the right to elect to sue the guarantor").
Although Roth was decided more than a century ago, its
reasoning remains sound. We note that it is consistent with
longstanding precedent and more recent decisions from other
jurisdictions.6 Cadle Co. v. Webb, 66 Mass. App. Ct. 269, 271
(2006), on which plaintiff relies, is not to the contrary. The
6
See Cummins v. Tibbetts, 58 Neb. 318 (1899) ("A cause of
action upon the guaranty accrued the moment default was made in
the payment of the note; Production Credit Assn. of Midlands v.
Schmer, 233 Neb. 749, 756 (1989) ("The statute of limitations
begins to run against a contract of guaranty the moment a cause
of action first accrues. . . . A guarantor's liability arises
when the principal debtor defaults"); Western Bank of
Albuquerque v. Franklin Dev. Corp., 111 N.M. 259, 260-261 (1991)
(collecting cases) "); Estate of Bitker, 251 Wis. 538, 544
(1947) ("When the principal fails to perform the acts
performance of which is guaranteed the guarantors are liable
from the time of the breach").
9
court in Cadle Co. did not actually use the foreclosure date as
the accrual date but only as a point of reference for a suit
that had to be filed within six years of accrual and was not
filed until eleven years after foreclosure and so was obviously
filed more than six years after accrual. The question of the
accrual date was not actually before the court, nor did the
court address it.
To be sure, guaranties can be drafted in such a way that
the statute would not begin to run until the creditor has
proceeded against the security. See, e.g., Whitehurst v. Duffy,
181 Va. 637, 642-643 (1943) (where guaranty expressly provided
that guarantor's liability could not be determined until
creditor proceeded against security, guaranty was "conditional
promise" and guarantor "was not to be called upon to pay the
note, or the balance due thereon, until it had been 'determined'
by a foreclosure . . . that the security was insufficient to
liquidate the debt"). However, that was not the case here. See
Pierce v. Merrill, 128 Cal. 464, 469 (1900) (rejecting
contentions that guaranty was subject to condition precedent,
that security be exhausted before guarantors' liability arose
and before any action could be maintained against them, and that
statute did not begin to run until mortgage was foreclosed and
deficiency ascertained where "guaranty was absolute and
unconditional" and "a breach thereof occurred, upon which to
10
base an action, when the note therein mentioned fell due and
remained unpaid").
As aptly stated in a decision from another jurisdiction:
"Whether or not the condition contended for [by the plaintiff]
attached to the guaranty is to be determined from the language
of the contract. . . . The language of the contract does not
import any such condition, but, on the contrary, negatives any
presumption to that effect. To hold that payment was not to be
made by defendant[] until after a foreclosure of the mortgage
would be to ignore" the terms of the guaranty. Id. at 470.7
Because the judge found that the note was in default by June 21,
1993,8 and because the holder was free to proceed against the
7
Contrary to the plaintiff's contentions, that the guaranty
may have covered obligations in addition to the note does not
preclude accrual of the cause of action of defendant's guaranty
of the note at the time of default thereunder.
8
In so holding, the trial judge relied on a summons issued
in a Land Court action brought pursuant to the Soldiers and
Sailors Civil Relief Act of 1940, now known as the
Servicemembers Civil Relief Act (Act), recorded in the Plymouth
county registry of deeds on June 21, 1993. The trial judge and
the parties refer to this document as a complaint to foreclose,
but an action brought pursuant to the Act is limited to a
determination whether the mortgagor is entitled to the benefit
and protections of the Act. See Beaton v. Land Court, 367 Mass.
385, 388 (1975); HSBC Bank, USA, N.A. v. Matt, 464 Mass. 193,
194 (2013). We note that it was reasonable for the judge to
conclude from the existence of the Soldiers' and Sailors' action
as of June 21, 1993, that the loan was in default by that date,
and certainly before March 4, 1994, the last day on which a
default could have occurred to bring the action within the
twenty-year statute of limitations.
11
defendant under the guaranty upon default,9 the statute of
limitations would have run no later than June 21, 2013, nearly
nine months before the plaintiff commenced this action. The
action was therefore properly dismissed as time barred.10
Judgment affirmed.
9
No party has suggested that the note was not properly
accelerated as of some date prior to March 4, 1994.
10
The defendant's motion for appellate fees and costs is
denied. The plaintiff's appeal is not frivolous. See Mass.
R.A.P. 25, as appearing in 376 Mass. 949 (1979); Worcester v.
AME Realty Corp., 77 Mass. App. Ct. 64, 72-73 (2010).