Filed 8/12/14 Moran v. Stetler CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JOHN MORAN,
Plaintiff and Appellant, G050050
v. (Super. Ct. No. RIC10018414)
KURT STETLER, OPINION
Defendant and Respondent.
Appeal from a judgment of the Superior Court of Riverside County,
Paulette Durban-Barkley, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Reversed.
Hacker Law Group and Jeffrey A. Hacker for Plaintiff and Appellant.
Steponovich & Associates and Michael J. Steponovich, Jr., for Defendant
and Respondent.
* * *
Plaintiff John Moran appeals from a judgment entered after the trial court
granted defendant Kurt Stetler’s motion for summary judgment on the ground the causes
of action for breach of promissory note, breach of contract, and money due and owing
were time barred by Civil Procedure section 337 (all further undesignated statutory
references are to this code) and section 339, subdivision 1. These causes of action were
based on four promissory notes and an oral agreement for a revolving line of credit
between plaintiff, defendant, and Steve Langevin. Plaintiff contends the six-year
limitations period under the California Uniform Commercial Code (Cal. U. Com. Code,
section 3118) applies to the four promissory notes at issue and that there was no evidence
of an outward act to trigger acceleration of the third and fourth notes. He also asserts the
action is timely under section 337. Finally, he contends the award of attorney fees and
costs should be reversed because the amount is excessive and includes unrecoverable
costs.
We conclude the first two promissory notes were time-barred whether
under California Uniform Commercial Code section 3118 or section 337 and that the oral
agreement for revolving line of credit claim was barred by the two-year limitations period
contained in section 339, subdivision 1. But as to the acceleration clauses in the third and
fourth promissory notes, the Supreme Court has held such clauses are intended to benefit
creditors and not those such as defendant who default on a money obligation. Thus, the
court erred in granting summary judgment in defendant’s favor and the judgment is
reversed.
FACTS AND PROCEDURAL BACKGROUND
Beginning in June 2003, plaintiff and defendant, along with Langevin,
purportedly entered into a series of promissory notes. In note 1, dated June 16, 2003,
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defendant and Langevin promised to repay the principal amount, plus 10 percent interest,
with “the entire principal and interest amount [to] be repaid on September 1, 2003.” Note
2, dated March 18, 2004, defendant and Langevin agreed to repay the principal amount in
“four [monthly] consecutive installments of interest,” with “the balance of the
principal . . . to be included with the final installment” and “[t]he entire principal and
interest amount [to] be repaid on July 18th, 2004.”
Defendant and Langevin were not the borrowers on both note 3, dated
December 9, 2004, and note 4, dated December 27, 2004. Rather, the borrowers were
Langevin Stetler, Inc. doing business as Diversified Communications Services, and its
shareholders (collectively LangStet). Defendant and Langevin acted as guarantors. The
notes had maturity dates of December 9, 2007, and December 27, 2007, respectively.
Both notes had acceleration clauses, stating that if payment was over 15 days late, the
unpaid amounts became immediately payable.
On September 16, 2010, plaintiff sued LangStet, Langevin, and defendant
for breach of promissory note, breach of contract, and money due and owing. The first
two causes of action were based on the failures to fully repay the amounts on the
promissory notes. The third cause of action was for the unpaid amounts on the
promissory notes, plus the outstanding amount on plaintiff’s advance for “the rental of
truck leases and other expenses,” under an agreement that “there would be a revolving
line of credit regarding these advances,” for which the outstanding balance “became due
and payable” on December 31, 2006.
Plaintiff obtained default judgments against LangStet and Langevin.
Defendant moved for summary judgment or alternatively summary adjudication on the
grounds the action was barred by statutes of limitations.
The court granted defendant’s motion for summary judgment, holding that
each of the four promissory notes (notes) alleged in the complaint was barred by the four-
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year statute of limitations contained in section 337. According to the court, the first two
notes had maturity dates occurring over four years before plaintiff filed this action, while
the other two had acceleration clauses triggering the limitations period more than four
years before the filing of this action. Additionally, it found the six-year limitations period
under California Uniform Commercial Code section 3118 did not apply because the
notes, taken together or separately, were not negotiable instruments under section 3104 of
the code. Lastly, the court concluded the claim for breach of a credit line was barred by
the two-year statute of limitations for oral contracts. (§ 339, subd. 1.)
DISCUSSION
1. Standard of Review
Summary judgment is appropriate where “all the papers submitted show
that there is no triable issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” (§ 437c, subd. (c).) “We review de novo the trial court’s
decision to grant summary judgment” (City of Vista v. Robert Thomas Securities, Inc.
(2000) 84 Cal.App.4th 882, 886), and “consider all of the evidence set forth in the papers,
except that to which objections have been made and sustained by the court, and all
[uncontradicted] inferences reasonably deducible from the evidence . . . .” (§ 437c, subd.
(c).) The defendant moving for summary judgment bears the burden of persuasion that
one or more elements of the cause of action in question cannot be established or, as with
the statute of limitations defense here, that there is a complete defense to the action. (See
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)
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2. Applicable Statute of Limitations
Plaintiff contends the six-year statute of limitations for negotiable
instruments contained in California Uniform Commercial Code section 3118 should have
been applied, rather than the four-year limitations period for written contracts in section
337. It matters not which statute is applied.
a. Notes 1 and 2 and the Revolving Credit Line Claim
Under California Uniform Commercial Code section 1103, the provisions
of the Code of Civil Procedure pertaining to limitations of actions apply unless there is a
special statute of limitations set forth in the California Uniform Commercial Code.
(Kaichen’s Metal Mart, Inc. v. Ferro Cast Co. (1995) 33 Cal.App.4th 8, 12-13; Bank of
America v. Security Pacific Nat. Bank (1972) 23 Cal.App.3d 638, 642, fn. 3.) California
Uniform Commercial Code section 3118, subdivision (a), is a special statute of
limitations for promissory notes, establishing “a six-year statute of limitations, from the
final due date, for promissory notes payable at a definite time.” (Cadle Co. v. World
Wide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504, 514, fn. 8.)
Notes 1 and 2 were time-barred as a matter of law even if California
Uniform Commercial Code section 3118, subdivision (a) applied. They matured on
September 1, 2003 and July 18, 2004, respectively – over six years before plaintiff filed
his complaint on September 13, 2010.
Defendant claims no evidence exists that the notes were accelerated before
October 31, 2006. But the part of his declaration he refers to pertains only to notes 3 and
4.
Plaintiff also asserts “the series of transactions were all related” in that all
the loans secured by the promissory notes were “used to infuse [LangStet] with capital.”
This is based on the facts (1) he did not believe repayment on the revolving line of credit
would be made until December 31, 2006, (2) it did not become apparent to him that a
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check from defendant would not be honored until October 31, 2006, and (3) notes 3 and 4
did not mature until December 2007. He thus reasons “[t]he action was timely
filed . . . .” But plaintiff acknowledges that under the case he cites, Armstrong Petroleum
Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, the statute of limitations
for contracts bars those claims that predate the complaint by four years: Under the
continuous accrual theory, “where performance of contractual obligations is severed into
intervals, . . . an action attacking the performance for any particular interval must be
brought within the period of limitations after the particular performance was due.” (Id. at
p. 1388.) Here, the action on notes 1 and 2 were not brought within six, much less four,
years after notes matured.
Moreover, the alleged “revolving line of credit” was unsupported by any
writing, making the statute of limitations for oral contracts under section 339, subdivision
1, applicable. Because the action was not filed within two years of December 31, 2006,
when the outstanding balance on that credit line allegedly “became due and payable,” that
claim is time-barred.
Defendant proposes the parties may have intended to make one contract,
rather than a severable one, with the four promissory notes. But his failure to provide any
reasoned analysis or cite to any evidence in support of how that theory applies here
forfeits his claim. (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857,
862.) “We are not bound to develop [defendant’s] arguments for [him].” (In re
Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814, 830.) The same applies to his
suggestion the promissory notes were part of an open book account.
b. Notes 3 and 4
As to notes 3 and 4, defendant relied on the acceleration clauses in those
notes to contend any action is barred by the four-year statute of limitations in section 337.
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The acceleration provisions in both notes provide, “If a full payment is not made in
accordance with the payment terms, and remains outstanding for more than fifteen (15)
days, it shall be considered an ‘Event of Default.’ Upon any Event of Default Debtor’s
obligation under this . . . [n]ote shall fully accelerate and become immediately payable to
[plaintiff].”
But defendant cites no authority for the proposition that obligors on a
promissory note may utilize an acceleration clause to start the running of the applicable
statute of limitations, whether that be section 337 or California Uniform Commercial
Code section 3118. The law is to the contrary.
“[T]he presence in a promissory note of a positive nonoptional acceleration
clause does not have a self-operative effect so that the statute of limitations begins to run
immediately upon the happening of a default in a payment which the note specifies shall
be made on a designated date.” (Trigg v. Arnott (1937) 22 Cal.App.2d 455, 458, italics
added.) Instead, “[i]f the creditor fails to act affirmatively to mature the indebtedness, the
statute of limitations is not set in motion. This is the rule notwithstanding the
acceleration clause is positive, rather than optional, in terms.” (Jones v. Wilton (1938) 10
Cal.2d 493, 500.) Thus, even when “the acceleration clause provides that the obligation
shall be due and payable ‘immediately’ or ‘at once,’ . . . the clause is not self-operative;
that it is for the benefit of the creditor, and the default cannot be taken advantage of by
the debtor to mature the indebtedness.” (Ibid.) Because this rule applies regardless
whether the acceleration clause is stated in optional or mandatory terms, defendant’s
claim to the contrary made during oral argument fails.
Belloc v. Davis (1869) 38 Cal. 242 involved a clause similar to the one
here. It provided that “‘in case default be made in any payment of interest, when the
same shall become due as aforesaid, then the whole amount of principal and interest to
become due and payable, immediately, upon such default.’” (Id. at p. 247.) The plaintiff
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filed the action over four years after a default in the payment of interest. The defendant
argued the whole amount of the note became due and payable upon a default in the
payment of interest. (Id. at pp. 248-249.)
In holding it did not, the court stated the acceleration clause “is evidently in
the nature of a penalty, inserted for the benefit of the creditor, and as an incentive to the
debtor to stimulate him to prompt payment of the interest, in order to avoid a forfeiture of
the credit allowed by the note. . . . [¶] . . . [¶] If it were otherwise, a perfectly solvent
debtor, owing a debt payable at a remote period, with interest payable monthly, or at
other stated periods, might shorten the credit to the statutory time of four years by
wil[l]fully declining to pay the first instal[l]ment of interest, provided the note contained
a clause similar to that in this case. . . . This would convert the [s]tatute of [l]imitations
from a statute of repose into one of oppression and fraud. Instead of simply compelling
the creditor to sue upon his demand within a reasonable time after it is due, it would
enable a dishonest debtor, if his interest prompted it, to compel the creditor to take
payment long before it is due, and thereby to escape the payment of future interest. We
do not give to the statute so narrow a construction, and therefore hold that the cause of
action in this case did not accrue until the maturity of the note.” (Belloc v. Davis, supra,
38 Cal. at pp. 249, 251-252, italics added; accord, Jones v. Wilton, supra, 10 Cal.2d at pp.
499-501; Mason v. Luce (1897) 116 Cal. 232, 236-237.)
As in Belloc v. Davis, supra, 38 Cal. at pp. 248, 249, plaintiff waived the
benefits of the acceleration clause by not acting on it. (See Congregational Church Bldg.
Soc. v. Osborn (1908) 153 Cal. 197, 204 [waiver of acceleration clause can “be
accomplished by mere passive acquiescence”].) The claims on notes 3 and 4 thus did not
accrue until their maturity dates of December 9 and 27, 2007, respectively, and plaintiff’s
complaint was timely filed in September 2010.
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3. Attorney Fees and Costs
The award of costs and attorney fees to defendant was based on defendant
being “the prevailing party on all written contractual obligations.” In light of our reversal
of the judgment, the attorney fees and costs award is likewise reversed.
DISPOSITION
The judgment is reversed. The parties are to bear their own costs.
RYLAARSDAM, ACTING P. J.
WE CONCUR:
MOORE, J.
THOMPSON, J.
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