Zelby Holdings, Inc. vs. Videogenix, Inc., 92 Mass. App. Ct. 86 (Aug. 18, 2017)
In March 2005, the predecessor to VideogeniX, Inc. (the “Borrower”) issued a promissory note for $30,000 (the “Promissory Note”) in favor of the predecessor to Zelby Holdings, Inc. (the “Lender”) and with a maturity date of March 2006. With the Promissory Note having become due and remaining unpaid, the Lender’s predecessor demanded payment under the Promissory Note in September 2008. The Borrower issued a check to the Lender in the amount of $250 in June 2010 and made no further payments on the Promissory Note.
In July 2015, eleven years after the Promissory Note’s maturity date but only five years after the Borrower’s partial payment, the Lender filed a claim for breach of contract and unjust enrichment, amongst others. The Borrower argued that the claim was barred by §3-118 of the Massachusetts Uniform Commercial Code (the “UCC”), which provides a six-year statute of limitations for claims specific to negotiable instruments, since the claim was brought eleven years after the stated due date. The Borrower reasoned that (i) the plain language of §3-118 states that the due date of the note triggers the statute of limitations, (ii) there is no express provision in §3-118 providing a forestall or revival of the statute of limitations and (iii) the purpose of the statute was to develop uniformity in the law of negotiable instruments to avoid a need to look outside the statute. The Lender countered by arguing that §3-118 does not address tolling and other rules related to the application of the statute of limitations and, therefore, the common-law partial payment rule (i.e., that a party may toll a statute of limitations by making a partial payment on a debt) remained applicable. As such, the Lender argued, the Borrower’s partial payment in June 2010 reset the statute of limitations and the claim was thus timely.
The trial court concluded that the Lender’s claim was, indeed, barred by the statute of limitations and granted the Borrower’s motion to dismiss. The appeals court, however, disagreed. The court cited case law specifying that “[under the UCC] a statute is not to be interpreted as effecting a material change in or a repeal of the common-law unless the intent to do is clearly expressed” and noted that there is nothing in §3-118 that expressly precludes the application of the common-law partial payment rule. Furthermore, the court noted that the UCC’s official comments stated that §3-118 “does not attempt to state all rules with respect to a statute of limitations [such as] the circumstances under which the running of a limitations period may be tolled . . .” Therefore the court concluded (after dismissing certain other arguments of the Borrower) that §3-118 did not terminate the applicability of the common-law partial payment rule and, because there was a question of fact as to whether the Borrower’s June 2010 partial payment evidenced an intent to renew its promise to pay the full principal amount of the Promissory Note (such that, if so, the statute of limitation would have reset to expire in June 2016), the trial court’s granting of a motion to dismiss was incorrect.
The court also held that the Lender’s other claims should not have been dismissed by the trial court since those claims were timely (having been accrued on the date the Borrower made its partial payment, rather than on the due date of the Promissory Note) and there were questions of fact for the trial court to determine.