Dorsey v. Rathbun

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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
5

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.
6

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.
7

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.
8

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").
10

"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
11

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."
12

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").
13

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.
14

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."
16

So ordered.