Article courtesy of Kevin Braun (Morgan, Lewis & Bockius LLP), Paige Forcier (Morgan, Lewis & Bockius LLP), and Ian Tomesch (Morgan, Lewis & Bockius LLP)
Dorsey v. Rathbun, 211 N.E.3d 73 (Mass App. Ct. 2023)
In September 2007, Paul Rathbun (“Borrower”) executed a secured promissory note (“Note”) in favor of Kimberly Dorsey (“Lender”) to pay part of the purchase price for Borrower’s house, maturing September 5, 2008. No payment was made, and Borrower’s counsel sent Lender’s counsel a letter in June 2016 complaining about problems with the property, noting the property was in foreclosure proceedings and offering to pay $100,000 in full settlement if and when Lender found a buyer.
In July 2016, Lender filed a complaint asserting breach of contract for nonpayment, recovery of attorney’s fees under the note and damages under the mortgage. Borrower’s answer asserted the six year statute of limitations under UCC 3-118 as an affirmative defense. Borrower argued that the claims under the note were untimely and that the mortgage was discharged as a matter of law under a now obsolete mortgage statute. The trial court ruled for Lender on all counts, concluding that (i) the Borrower was estopped from contesting the enforceability of the mortgage due to willful misrepresentation, (ii) the UCC 3-118 statute of limitations did not apply, but rather a 20-year state statute of limitations relating to “[a]ctions upon promissory notes signed in the presence of an attesting witness” and (iii) awarded attorneys’ fees. Lender appealed.
After affirming the lower court’s estoppel ruling, preventing Borrower from contesting the mortgage’s enforceability, the court rejected the lower court’s reasoning as to the UCC 3-118 statute of limitations and found that it did apply. As a threshold matter, Lender had argued that the UCC-3 statute of limitations did not apply because the underlying transaction was not “commercial”, but rather “personal”. The court dismissed this line of inquiry, as, unlike parts of the UCC that expressly apply only to “merchants” (e.g., UCC 2-314), article 3 contains no such limitations. Next, the court addressed whether the Note was a negotiable instrument under Massachusetts G.L. c. 106, §3-104(a), given the statue’s requirement that a negotiable instrument be a “an unconditional promise or order to pay a fixed amount of money. . . at a definite time”. First, Lender argued that the prepayment clause rendered the payment time “indefinite.” The court rejected this argument, citing UCC 3-108, noting that 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.” Next, Lender argued that the clause requiring payment of attorneys’ fees was a promise to pay an indefinite amount of money. The court rejected this argument, noting that the statute allows that a “fixed amount of money” can include “interest or other charges described in the promise or order” and that other persuasive authority has held “other charges” to encompass attorneys’ fees. Finally, Lender argued the acceleration clause rendered the promise to pay conditional and the payment time indefinite. Citing UCC 3-108, the court rejected this argument, noting that payment time can be subject to certain rights, including acceleration.
For the forgoing reasons, the court held that the UCC-3 statute of limitation applied and dismissed the claim.
