Besaw, Trustee of Revocable Living Trust of Ernest P. Giroux v. Giroux, 2018 WL 6714805 (2018)
Promissory Note holder’s right to sue for the return of collateral accrued, and statute of limitations period began to run, not on the initial failure to pay but when borrower failed to pay balance due within 45 days of notice of default and borrower’s failure to cure, where note required such notice and cure period as a condition of noteholder’s right to sue on the promissory note.
Upon the death of the defendant’s grandfather, Ernest Giroux (“Ernest”), Annette Besaw, in her capacity as trustee of his living will (the “Trustee”), gained a security interest in 50 shares of the family business, of which Raymond Giroux, the defendant’s father (“Raymond”), and grandfather each owned 50 of the business’ total 100 shares. On December 30, 1998, Ernest sold his 50 shares to Raymond in exchange for a promissory note in the amount of $272,200 plus interest, secured by a security interest in 50 shares of the family business. The promissory note required Raymond to make monthly payments until January 1, 2028. According to the terms of the note, the failure to make monthly payments in accordance with the amortization schedule did not by itself trigger a default or penalty. Instead, if at the end of any year Raymond owned more under the note than was due under the amortization schedule, the overdue balance would trigger a penalty, and if such overdue balance and penalty were not repaid before the end of the following year, the nonpayment would constitute a default under the note. Moreover, in an event of a default, the note required that the noteholder provide written notice to the default and permit the borrower an opportunity to cure within 45 days after receipt of the notice of default. The noteholder may then declare, in the event that the borrower failed to cure following such notice, the amounts immediately due and payable without any further notice.
Raymond, however, never made any payments on his debt under the note. In 2005, he transferred to his son the 50 shares he used as collateral to secure his obligations under the note. In 2008, following Ernest’s death, the Trustee sent Raymond a letter claiming that no payments had been made under the note, of which a specified amount was now due. Raymond did not follow up with any payments. Then, in 2013, the Trustee responded with a second letter addressed to Raymond, this time demanding payment on the note and giving him 45 days to cure the default. Raymond once again failed to make any payments. The Trustee therefore sued Raymond for the entire indebtedness under the note, and the superior court entered judgment in favor of the Trustee. Shortly thereafter, in 2016, the Trustee sued Bryan Giroux (the “Defendant”) in order to compel the delivery of the share certificate that had secured the indebtedness under the note.
On appeal, the central issue was to determine when the Trustee’s right to sue accrued, thereby triggering the six-year statute-of-limitations period. The Trustee argued that her right to sue did not start until 2013, when she formally declared a default and Raymond failed to comply with the 45-day cure period. In response, the Defendant claimed that the Trustee’s right to bring an action was time-barred because the statute of limitations started as soon as there was a default in 1999 (i.e., a default, per the security agreement, meant the “failure to pay the note in accordance with its terms”). The court ultimately rejected this argument. The Trustee’s right to sue, according to the court, began in 2013 when Raymond failed to pay the balance on the note within 45 days of the Trustee’s notice of default and notice of right to cure. The court reasoned that, if the parties agree to make a default actionable only upon certain conditions, the statute of limitations would not run until those conditions are satisfied. In this situation, given the plain terms of the promissory note and security agreement taken as a whole, the right to sue for the return of the collateral securing the note arose when the borrower failed to pay the amounts due under the promissory note 45 days after Trustee’s declaration of default and the notice of the right to cure, rather than the actual date of any default. The court explained that multiple instruments executed at the same time and for the same purpose are read together in order to discern the parties’ intent. In this case, by reading the plain language of the promissory note and security agreement together, the court held that the noteholder’s right to sue was not time-barred because it was conditioned upon delivering a notice of default and a 45-day opportunity to cure such default.