Dorsey v. Rathbun ( 2023 )

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22-P-542 Appeals Court
KIMBERLY J. DORSEY vs. PAUL W. RATHBUN.
No. 22-P-542.
Plymouth. January 18, 2023. – May 12, 2023.
Present: Sullivan, Shin, & Hodgens, JJ.
Mortgage, Real estate. Real Property, Mortgage. Negotiable
Instruments, Note, Defenses. Limitations, Statute of.
Uniform Commercial Code, Payment on negotiable instrument.
Judicial Estoppel. Practice, Civil, Case stated.
Civil action commenced in the Superior Court Department on
July 1, 2016.
The case was heard by Gregg J. Pasquale, J., on a case
stated.
Matthew J. Costa for the defendant.
James P. Devlin for the plaintiff.
SHIN, J. At issue is whether the plaintiff's claims to
recover on a promissory note are barred by the Uniform
Commercial Code's (UCC) statute of limitations governing actions
to enforce negotiable instruments -- in particular, the six-year
statute of limitations for "action[s] to enforce the obligation
2
of a party to pay a note payable at a definite time." G. L.
c. 106, § 3-118 (a). The defendant executed the note, and a
mortgage securing it, to finance his purchase of the plaintiff's
house. After a trial on a case-stated basis, a Superior Court
judge ruled that the UCC statute of limitations did not apply
because the transaction was not "commercial" in nature, in that
neither party was in the business of buying or selling houses or
granting or obtaining secured loans. Instead, the judge ruled
that the twenty-year statute of limitations for actions on
promissory notes, G. L. c. 260, § 1, governed the plaintiff's
claims, rendering them timely. Judgment then entered in the
plaintiff's favor, from which the defendant appeals.
Regardless of how one might characterize the nature of the
underlying transaction, we conclude that G. L. c. 106, § 3-118,
applies to the plaintiff's claims because the note in question
qualifies as a negotiable instrument as defined in the UCC. The
claims, filed more than six years after the note became due, are
therefore time-barred. We further conclude, however, that
judgment properly entered for the plaintiff on her separate
claim to recover damages under the mortgage, as the defendant
has shown no error in the judge's applying judicial estoppel to
preclude the defendant from challenging the enforceability of
the mortgage. Thus, we affirm in part, reverse in part, and
remand for entry of an amended judgment.
3
Background. The facts are not in dispute. In September
2007 the defendant purchased the plaintiff's house, located on
County Street in Lakeville (property), and executed a promissory
note to partially finance the purchase. The note was payable to
the plaintiff in the principal amount of $220,000 with five-
percent annual interest. It was secured by a first mortgage to
the plaintiff on the property.
The note stated a maturity date of September 5, 2008, but
contained a clause giving the defendant "the right to prepay"
the amounts due under the note, and a clause providing that
payment would "become due immediately" if any of eight specified
"events of default" occurred. The note also contained a clause
requiring the defendant "to make principal payment of $20,000.00
within five (5) days of sale of [his] other property located" on
Azalea Street in Lakeville. In the event the defendant failed
to make any payment when due, he "promise[d] to pay all costs of
collection, including reasonable attorney's fees."
On January 5, 2009, after the defendant failed to make any
payment on the note, the plaintiff sent him a letter stating
that the note was overdue. The defendant replied by letter that
he could not afford to pay and offered to execute a new note
financing the amount owed over a period of thirty years. The
plaintiff did not respond.
4
The parties did not exchange any further written
correspondence until June 21, 2016. On that date the defendant,
through counsel, sent a letter to the plaintiff's counsel
complaining of various problems with the property, noting that
the property was in tax foreclosure proceedings, and offering
"to pay [the plaintiff] $100,000, in full settlement of her
mortgage, if and when [the defendant] finds a buyer." Again,
the plaintiff did not respond.
On July 1, 2016, about seven years and ten months after the
due date of the note, the plaintiff filed the underlying action.
The complaint, as twice amended, asserted numerous claims,
including for breach of contract based on nonpayment of the note
(Count I), for recovery of attorney's fees under the note (Count
X), and for damages under the mortgage (Count XI). The
defendant's answer asserted the statute of limitations as an
affirmative defense.
The same day she filed the action, the plaintiff moved for
a real estate attachment, averring that she "recently learned
that the property is in tax title proceedings" and "also
recently learned that [her] 2007 mortgage may be no longer
valid, due to an intervening law change."1 In opposing the
1 This was presumably in reference to Deutsche Bank Nat'l
Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248, 253-257
(2015), which held that, where a mortgage does not expressly
contain a term or maturity date, the term or maturity date of
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motion, the defendant submitted a sworn affidavit in which he
asserted that the plaintiff did not need an attachment because
she had an existing mortgage:
"As far as security for the Plaintiff's claim, she already
has a $220,000.00 mortgage on the subject real estate. She
states in her Affidavit that 'my 2007 mortgage may be no
longer valid, due to an intervening law change.' I am
unaware of any change in the law which would prevent her
from foreclosing on this property, which is not owner-
occupied, and for which there has never been an assignment
of the mortgage" (ellipses omitted).
After a hearing on July 6, 2016, a judge (first judge) denied
the plaintiff's motion.
About three months later, the defendant sold the property
to a third party for $215,000. None of the proceeds were
provided to the plaintiff. The defendant then moved, in July
2017, to dismiss all of the plaintiff's claims on grounds that
they were barred by the respective statutes of limitations. At
a hearing on the motion before a second judge, the defendant
disclosed the fact of the third-party sale and testified that he
learned within a few days of the July 6, 2016, hearing before
the underlying obligation -- if stated on the face of the
mortgage -- serves as the term or maturity date of the mortgage
for purposes of determining the limitations period under the
obsolete mortgage statute, G. L. c. 260, § 33. Here, the
mortgage references the underlying note and the defendant's
"promise[] . . . to pay the debt in full not later than
September 5, 2008." The term or maturity date of the mortgage
was therefore September 5, 2008, and the limitations period
under the obsolete mortgage statute expired five years from that
date. See Deutsche Bank Nat'l Trust Co., supra at 252, 257-258.
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the first judge that the mortgage was unenforceable under the
obsolete mortgage statute, G. L. c. 260, § 33; he did not
previously report this to the court, however. Based on this
conduct, the second judge found that the defendant had
"willfully misrepresented information concerning the
[p]roperty's security interests when he opposed the real estate
attachment" and that he was judicially estopped from challenging
the enforceability of the mortgage as a result.
Eventually, the parties agreed to submit Counts I, X, and
XI on a case-stated basis.2 In the joint statement of facts, the
defendant stipulated that he made no payment on the note. He
argued, however, that the claims under the note were untimely
under G. L. c. 106, § 3-118, and that the mortgage was
discharged as a matter of law under the obsolete mortgage
statute. Ruling in the plaintiff's favor on all three counts,
the trial judge concluded that the claims under the note were
governed not by G. L. c. 106, § 3-118, but by the twenty-year
statute of limitations for "[a]ctions upon promissory notes
signed in the presence of an attesting witness." G. L. c. 260,
§ 1. The judge further concluded that the plaintiff could
recover damages separately under the mortgage, adopting the
second judge's ruling that the defendant was judicially estopped
2 The remaining claims are not at issue on appeal.
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from contesting the enforceability of the mortgage. Judgment
then entered for the plaintiff in the amount of $550,500.81,
which included $323,583.33 in damages and $27,927.15 in
attorney's fees.
Discussion. 1. Statute of limitations. We review a
decision issued on a case-stated basis de novo, "drawing our own
inferences of fact and reaching our own conclusions of law."
Hickey v. Pathways Ass'n, Inc., 472 Mass. 735, 743 (2015). With
respect to the claims under the note, the sole issue before us
is whether the governing limitations period is six years under
G. L. c. 106, § 3-118 (a),3 or twenty years under G. L. c. 260,
§ 1. It is uncontested that the claims would be untimely under
the former, but timely under the latter.
We do not start on a blank slate in deciding this question.
In Premier Capital, LLC v. KMZ, Inc., 464 Mass. 467, 471 (2013),
the Supreme Judicial Court examined G. L. c. 106, § 3-118 --
which is part of art. 3 of the UCC, the law of negotiable
instruments -- and concluded that it "created a uniform statute
Specifically, G. L. c. 106, § 3-118 (a), states that "an
3
action to enforce the obligation of a party to pay a note
payable at a definite time must be commenced within six years
after the due date or dates stated in the note or, if a due date
is accelerated, within six years after the accelerated due
date." The remaining subsections of G. L. c. 106, § 3-118, not
relevant here, set out the limitations periods applicable to
actions on other types of negotiable instruments, such as
checks.
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of limitations for all actions arising under art. 3." As the
court reasoned, the Legislature enacted G. L. c. 106, § 3-118,
"to increase uniformity in the law of negotiable instruments
across States, such that parties need not look beyond art. 3 to
determine the applicable time frame within which to file suit."
Id. Thus, in light of this "clearly stated" legislative
purpose, the court held that G. L. c. 106, § 3-118, "takes the
place of all other statutes of limitations that might otherwise
apply to negotiable instruments." Id. at 472. The displaced
statutes include "the general statute of limitations found in
[G. L.] c. 260" (citation omitted). Id. at 471.
While the specific question presented in Premier Capital,
LLC, was whether G. L. c. 106, § 3-118, governs actions on
negotiable instruments executed under seal, the underlying
rationale of the decision applies with equal force here.
Because G. L. c. 106, § 3-118, "created a uniform statute of
limitations for all actions arising under art. 3," Premier
Capital, LLC, 464 Mass. at 471, it follows that the
applicability of the statute to the plaintiff's claims depends
on whether the note she is seeking to enforce is a negotiable
instrument within the meaning of art. 3. We see no support in
the statute for the plaintiff's contention that it is the nature
of the underlying transaction -- i.e., whether it is
"commercial" or "personal" -- that matters. Unlike other parts
9
of the UCC that expressly apply only to "merchants," see, e.g.,
G. L. c. 106, § 2-314 ("a warranty that the goods shall be
merchantable is implied in a contract for their sale if the
seller is a merchant with respect to goods of that kind"),4 art.
3 contains no such limitation. To the contrary, as stated in
the official comment to G. L. c. 106, § 3-104, "[t]he definition
of 'negotiable instrument' defines the scope of Article 3 since
Section 3-102 states: 'This Article applies to negotiable
instruments.'" See Premier Capital, LLC, supra at 471 n.6 ("UCC
Official Comments do not have the force of law, but are
nonetheless the most useful of several aids to interpretation
and construction of the [UCC]" [quotation and citation
omitted]). Our conclusion is reinforced by the fact that art. 3
applies to checks, including personal checks, irrespective of
the characteristics of the transaction or the parties to it.
See G. L. c. 106, §§ 3-104 (f), 3-118 (c) & official comment 3.
We thus turn to whether the note in question is a
negotiable instrument under art. 3. With immaterial exceptions,
art. 3 defines "negotiable instrument" as:
4 See also G. L. c. 106, § 2-104 ("merchant" is "a person
who deals in goods of the kind or otherwise by his occupation
holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction or to whom such
knowledge or skill may be attributed by his employment of an
agent or broker or other intermediary who by his occupation
holds himself out as having such knowledge or skill").
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"an unconditional promise or order to pay a fixed amount of
money, with or without interest or other charges described
in the promise or order, if it:
(1) is payable to bearer or to order at the time it is
issued or first comes into possession of a holder;
(2) is payable on demand or at a definite time; and
(3) does not state any other undertaking or instruction by
the person promising or ordering payment to do any act in
addition to the payment of money, but the promise or order
may contain (i) an undertaking or power to give, maintain,
or protect collateral to secure payment, (ii) an
authorization or power to the holder to confess judgment or
realize on or dispose of collateral, or (iii) a waiver of
the benefit of any law intended for the advantage or
protection of an obligor."
G. L. c. 106, § 3-104 (a). There is no dispute that the note
here contains a promise to pay a fixed amount of money
($220,000), payable to order (of the plaintiff), at a definite
time (September 5, 2008). Nonetheless, the plaintiff asserts,
with little discussion, that three other aspects of the note are
conditions to the promise to pay, destroying the note's
negotiability. We take these in turn.
First, the plaintiff cites the provision that gives the
defendant "the right to prepay" the amounts due under the note.
But the plaintiff points to nothing in art. 3 to support the
premise that a borrower's reserving the right to prepay destroys
the negotiability of a note. Her claim that a right to prepay
is a condition to the promise to pay is untethered to the text
of the statute. What constitutes an "unconditional" promise is
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addressed in G. L. c. 106, § 3-106 (a), which provides that "a
promise or order is unconditional unless it states (i) an
express condition to payment, (ii) that the promise or order is
subject to or governed by another writing, or (iii) that rights
or obligations with respect to the promise or order are stated
in another writing."5 The prepayment provision is contained
within the note itself and is not an express condition to
payment -- it is an option that the defendant may exercise, but
it does not affect his promise to pay the fixed amount stated in
the note. See Official Comment 1 to G. L. c. 106, § 3-106 ("A
statement of rights and obligations concerning collateral,
prepayment, or acceleration does not prevent the note from being
an instrument if the statement is in the note itself"). We also
reject the suggestion, to the extent made, that a borrower's
reservation of the right to prepay renders the time for payment
indefinite. As expressly provided in G. L. c. 106, § 3-108 (b),
the time for payment can be "subject to" certain rights,
including the right of "prepayment," without affecting whether
the promise meets the definition of "payable at a definite
time."
5 Section 3-106 goes on to state that "[a] reference to
another writing does not of itself make the promise or order
conditional" and that "[a] promise or order is not made
conditional . . . by a reference to another writing for a
statement of rights with respect to collateral, prepayment, or
acceleration."
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Second, the plaintiff cites the requirement that the
defendant "pay all costs of collection, including reasonable
attorney's fees." But she fails to mention or address that the
definition of "negotiable instrument" allows for the "fixed
amount of money" to include "interest or other charges described
in the promise or order." G. L. c. 106, § 3-104 (a). Courts in
other jurisdictions have held that "other charges" encompasses
collection costs. See Jenkins v. Karlton, 329 Md. 510, 524
(1993) (provision for "collection fees, including reasonable
attorneys' fees" does not "destroy[] a note's negotiability");
Roy v. Mugford, 161 Vt. 501, 514 (1994) ("We have enforced
contractual provisions in negotiable instruments making the
debtor responsible for collection costs, including attorney's
fees . . ."). The plaintiff has waived any argument to the
contrary, as she did not raise the issue in her trial memorandum
(or in her appellate brief). Furthermore, we disagree with her
assertion that the provision for collection costs "is clearly a
condition to the promise to pay," as the defendant's promise to
pay is not contingent on whether he might also have to pay the
collection costs. Cf. Official Comment 1 to G. L. c. 106,
§ 3-106 (a) (example of express condition to payment would be:
"I promise to pay $100,000 to the order of John Doe if he
conveys title to Blackacre to me").
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Third, the plaintiff cites the provision that payment would
"become due immediately" upon the occurrence of one of the eight
specified "events of default." We agree with the defendant,
however, that this is an acceleration clause, which does not
make the promise to pay conditional. See Official Comment 1 to
G. L. c. 106, § 3-106 ("A statement of rights and obligations
concerning collateral, prepayment, or acceleration does not
prevent the note from being an instrument if the statement is in
the note itself"). Also, that the note gives the plaintiff the
right to accelerate payment does not make the time for payment
indefinite. As mentioned, under G. L. c. 106, § 3-108 (b), the
time for payment can be "subject to" certain rights; these
include the right of "acceleration."6
We therefore conclude that the note is a negotiable
instrument under art. 3 and that the claims under it, Counts I
and X, are subject to the six-year statute of limitations found
in G. L. c. 106, § 3-118 (a). Because the plaintiff filed the
claims more than six years after the due date of the note, they
are untimely and should have been dismissed.
6 The plaintiff makes no separate argument with regard to
the clause requiring the defendant to make partial payment of
the principal within five days of sale of his Azalea Street
property. Although the trial judge concluded that this was a
condition that rendered the note nonnegotiable, that conclusion
cannot be squared with G. L. c. 106, § 3-106, as the partial-
payment clause is not "an express condition to payment," nor is
it subject to or governed by another writing.
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2. Judicial estoppel. The expiration of the limitations
period for enforcing the note does not, however, preclude the
plaintiff from enforcing the mortgage. "[A]t both law and
equity, the inability to recover directly on a note due to the
expiration of a statute of limitations is no bar to recovery
under a mortgage, so long as the underlying debt remains unpaid"
(citation omitted). Thornton v. Thornton, 97 Mass. App. Ct.
694, 695 (2020). Although the defendant claims in a footnote in
his brief that the mortgage is unenforceable under the obsolete
mortgage statute, G. L. c. 260, § 33, he does not argue that the
trial judge erred in finding that he was judicially estopped
from raising such a claim. He has thus waived any challenge to
that finding. See Nelson v. Salem State College, 446 Mass. 525,
527 n.2 (2006).
Even absent waiver, we would be unable to conclude on this
record that the trial judge abused his discretion in invoking
judicial estoppel. See Otis v. Arbella Mut. Ins. Co., 443 Mass.
634, 640 (2005) ("Application of the equitable principle of
judicial estoppel to a particular case is a matter of
discretion"). Judicial estoppel has two fundamental elements.
First, the position being asserted must be "directly contrary
to" a position previously asserted. Id. at 641. This element
is met because, in opposing the plaintiff's motion for a real
estate attachment, the defendant asserted that the plaintiff did
15
not need an attachment because she could foreclose on the
mortgage -- a position directly contrary to his current position
that the mortgage was discharged by operation of the obsolete
mortgage statute. Second, the party being estopped "must have
succeeded in convincing the court to accept its prior position."
Id. The defendant succeeded in persuading the first judge to
deny the plaintiff's motion for the attachment; and as the
record appendix contains no hearing transcript or written order
on that motion, we have no basis on which to conclude that the
defendant's representation regarding the enforceability of the
mortgage did not factor into the first judge's decision. In
turn, we have no basis to disturb the judgment entered for the
plaintiff on her claim under the mortgage, Count XI, entitling
her to recover the amounts owed under the note.7
Conclusion. So much of the judgment as entered for the
plaintiff on Counts I and X is reversed. The remainder of the
judgment is affirmed, and the matter is remanded for entry of an
amended judgment.
7As the trial judge observed in his decision, the plaintiff
did "not seek to foreclose and recover title to the [p]roperty"
but sought "only damages for non-payment of the [n]ote." The
defendant does not contest that these damages were recoverable
under the mortgage and has thus waived any claim to the
contrary. We note also that the mortgage has a provision
stating: "If all or any part of the Property or any Interest in
the Property is sold or transferred . . . without Lender's prior
written consent, Lender may require immediate payment in full of
all sums secured by this Security Instrument."
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So ordered.