DiMeo v. Nupetco Associates, LLC

2013 UT App 188
_________________________________________________________

THE UTAH COURT OF APPEALS

DIANE DIMEO,
Plaintiff and Appellee,
v.
NUPETCO ASSOCIATES, LLC,
Defendant and Appellant.

Memorandum Decision
No. 20120395‐CA
Filed July 26, 2013

Second District, Farmington Department
The Honorable John R. Morris
No. 060700354

James C. Swindler and Callie Buys, Attorneys for
Appellant
George A. Hunt and Mark R. Anderson, Attorneys
for Appellee

JUDGE GREGORY K. ORME authored this Memorandum Decision,
in which JUDGES WILLIAM A. THORNE JR. and STEPHEN L. ROTH
concurred.

ORME, Judge:

¶1 Nupetco Associates, LLC (Nupetco) appeals rulings by the
district court granting partial summary judgment in favor of Diane
DiMeo, denying Nupetco’s motion for partial summary judgment,
and dismissing its counterclaim. The case revolves around a trust
deed conveyed over thirty years ago by DiMeo’s predecessors in
interest, who died in 1987. We reverse and remand for further
proceedings.

¶2 In July 1982, B.I. Associates and several members of the
Strand family executed a promissory note for $373,909.13 in favor
DiMeo v. Nupetco Associates

of Murray First Thrift & Loan Company. Payment on the note was
due monthly, with the final payment due ten years later in July
1992. The note was secured by a trust deed that granted a security
interest in real property owned by Vern and Eleanor Strand, who
were among the obligors on the note. The note was transferred
several times before ultimately being acquired by Nupetco.

¶3 Both Vern and Eleanor passed away in 1987. Following their
deaths, Michael Strand, also one of the original obligors, was the
only one who made occasional payments on the note. In 1990, the
note had still not been paid in full, and Michael waived any
defenses to his payment obligation. He continued to make periodic
payments over the next fifteen years. Neither Vern nor Eleanor
ever made a payment on the note before their deaths, and neither
of their estates made any payment following their deaths.

¶4 In 2006, Diane DiMeo, who had been appointed as Eleanor’s
personal representative, brought this action to quiet title in the
property securing the note. DiMeo argued that the trust deed could
not be enforced because foreclosure was barred by the statute of
limitations. DiMeo and Nupetco both moved for partial summary
judgment. The court ruled in favor of DiMeo. The district court first
ruled that Vern, Eleanor, and their estates were no longer
personally liable on the note because the statute of limitations had
run as to their obligation by no later than 1998. See Utah Code Ann.
§ 78B‐2‐309(2) (LexisNexis 2012) (requiring an action to be brought
on any obligation or writing within six years of its creation); id. §
78B‐2‐113(1) (explaining that the running of the statute of
limitations begins anew each time a payment on or
acknowledgment of the debt is made by the debtor).1 The court

1. Utah Code sections 78B‐2‐309 and 78B‐2‐113, formerly appearing
in the Utah Code as sections 78‐12‐23 and 78‐12‐44, respectively,
were renumbered in 2008. See Utah Code Ann. § 78B‐2‐309 amend.
notes (LexisNexis 2012); id. § 78B‐2‐113 amend. notes. As the
(continued...)

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DiMeo v. Nupetco Associates

next ruled that the trust deed was unenforceable because Vern’s
and Eleanor’s legal status under the note changed from that of
obligors to sureties when, due to the running of the statute of
limitations, Nupetco’s ability to collect from them personally had
expired. The district court further determined that modifications,
such as extension of the note’s payoff date and the permitting of
interest‐only payments, were made to the note after Vern and
Eleanor’s death. Reasoning that because sureties are exonerated
when material modifications are made to the underlying contract
without their consent, the district court concluded that “any
security pledged [by Vern and Eleanor] to secure the obligation
must . . . be discharged, and no recourse may be had to that
security in enforcement of the [n]ote.” Nupetco filed a motion
seeking to have the district court alter or amend the judgment. The
motion was denied.

¶5 In 2009, DiMeo filed an amended complaint adding
additional parties to the action. Nupetco filed an answer and
counterclaim, seeking judgment on the note against Michael Strand
as well as foreclosure of the trust deed. The district court dismissed
Nupetco’s pleading. Nupetco appeals.

¶6 “An appellate court reviews a trial court’s legal conclusions
and ultimate grant or denial of summary judgment for
correctness.” Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citation
and internal quotation marks omitted). Summary judgment is
appropriate when a party can “show that there is no genuine issue
as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Utah R. Civ. P. 56(c). No issue of
material fact exists because the parties have stipulated to all of the
relevant facts, and neither party contests that Michael’s obligation

1. (...continued)
substance of these statutes remains unchanged in the renumbered
versions, we cite the most recent codification as a convenience to
the reader.

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on the note is alive and well. The only remaining question is
whether the trust deed still validly secures the obligations due
under the note. We conclude that it does and that Nupetco’s
motion for partial summary judgment—not DiMeo’s—should have
been granted.

¶7 A trust deed secures the obligations due under a note by
transferring a security interest in real property to a trustee to be
held until the debt is repaid. Utah Code Ann. § 57‐1‐19 (LexisNexis
2010); First Sec. Bank of Utah, NA v. Banberry Crossing, 780 P.2d 1253,
1256 (Utah 1989). In other words, the pledged property is used as
collateral for the obligation and can be foreclosed in the event of
default. See Black’s Law Dictionary 476 (9th ed. 2009); Restatement
(Third) of Property: Mortgages Introduction (1997). Here, Michael
has failed to meet his obligations under the note now held by
Nupetco—a note secured by a trust deed that grants a security
interest in the property formerly owned by Vern and Eleanor and
now owned by Eleanor’s estate. Because Michael has failed to
repay the loan, Nupetco is entitled to foreclose the trust deed.
Indeed, this is the remedy the law requires Nupetco to pursue
because the “one action” or “security first” rule prevents Nupetco
from pursuing a judgment against Michael personally until the
security interest in real property has been first applied against the
amount due. See Utah Code Ann. § 78B‐6‐901(1) (“There is only one
action for the recovery of any debt, or the enforcement of any right,
secured solely by mortgage upon real estate[.]”); Machock v. Fink,
2006 UT 30, ¶ 12, 137 P.3d 779 (“We have interpreted this statute as
preventing a creditor from ‘suing the debtor personally on the note
until it first forecloses against the real property.’ We have also
recognized the statute’s applicability to trust deeds.”) (quoting City
Consumer Servs., Inc. v. Peters, 815 P.2d 234, 236 (Utah 1991)); APS
v. Briggs, 927 P.2d 670, 672–73 (Utah Ct. App. 1996) (holding that
the one action rule requires that “the security be exhausted first”).

¶8 DiMeo does not dispute these general precepts but argues
that the district court was correct in denying Nupetco summary
judgment because it determined that the trust deed was

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unenforceable. The district court arrived at this conclusion by first
determining that the statute of limitations barred Nupetco from
seeking a remedy against Vern and Eleanor personally. The court
pointed to Holloway v. Wetzel, 45 P.2d 565 (Utah 1935), which states
that “a part payment . . . by one of two or more joint and several
obligors does not of itself suspend the running of the statute of
limitations against the other co‐obligor.” Id. at 568. The district
court concluded that under Holloway, Michael Strand’s periodic
and continued payments on the note did not suspend the six‐year
statute of limitations as to Vern and Eleanor, and that because
neither Vern nor Eleanor ever made any payment, the ability of
Nupetco to recover against them expired, at the latest, in 1998. We
agree with the district court’s conclusion that Nupetco’s ability to
obtain a deficiency judgment against Vern, Eleanor, or their estates
has long since expired due to their longstanding failure to make
any payments due under the note. While some may have
misgivings about the continued relevance of a Depression‐era case
in adjusting the rights as between co‐obligors, it appears that
Holloway is still good law and that it was applied correctly by the
district court to excuse Vern, Eleanor, and their estates from any
personal liability for the amounts due under the note. Our
agreement with the district court’s analysis, however, ends there.

¶9 The surety issue seized upon by the district court simply
does not hold water. Neither the district court nor DiMeo cite any
legal precedent to support the conclusion that when the statute of
limitations ran, Vern’s and Eleanor’s legal status changed from that
of obligors to sureties—a change that would have occurred outside
of any writing and after the couple’s death. The district court’s
analysis is at odds with the basic maxim of contract interpretation,
namely that contracts are interpreted in accordance with the plain
meaning of their terms, absent some ambiguity. See, e.g., Central
Florida Invs., Inc. v. Parkwest Assocs., 2002 UT 3, ¶ 12, 40 P.3d 599
(“If the language within the four corners of the contract is
unambiguous, the parties’ intentions are determined from the plain
meaning of the contractual language, and the contract may be
interpreted as a matter of law.”). See also Merrick Young Inc. v.

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Wal‐Mart Real Estate Bus. Trust, 2011 UT App 164, ¶ 17, 257 P.3d
1031 (“The goal of contract interpretation is to give effect to the
contracting parties’ intentions at the time the contract was made.”).
The trust deed does not mention or contemplate any type of
suretyship. See 74 Am. Jur. 2d Suretyship § 9 (2012) (“[T]o determine
suretyship status, the court first looks to the substance of the entire
transaction rather than its form. Generally, an agreement of
suretyship must be in writing and must be explicit.”). More
fundamentally, neither DiMeo nor the district court explains how
the mere fact that some obligors on the note can no longer be held
personally liable undercuts the continued vitality of the trust deed
as security for the note. It is clear to us that the running of the
statute of limitations only prevents Nupetco from imposing
liability on Vern and Eleanor personally for amounts still due after
the security is sold and the proceeds applied to the debt. It had no
legal effect on the pair’s status as co‐obligors on the note, much less
did it transform them into sureties. Cf. Kamas Sec. Co. v. Taylor, 226
P.2d 111, 117 (Utah 1950) (holding that the “‘effect of a statute of
limitations is to bar the remedy but not to discharge the
obligation’”) (quoting Restatement of Security § 47 cmt. a (1941)).2

2. Even had Vern and Eleanor Strand somehow become sureties,
the modifications made to the underlying contract would not have
exonerated the pledge of their real property as security for the debt.
While DiMeo argues that the time extension for repayment granted
to Michael Strand, as well as his interest‐only payments, were
material modifications of the original contract, such minor
alterations are not of the nature or degree that would trigger a
discharge of their pledge of security under suretyship law. See
Restatement (Third) of Suretyship & Guaranty § 41 (1996) (“If the
principal obligor and the obligee agree to a modification, other than
an extension of time or a complete or partial release, of the principal
obligor’s duties pursuant to the underlying obligation . . . the
secondary obligor is discharged from any unperformed duties
pursuant to the secondary obligation.”) (emphasis added). Perhaps
(continued...)

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DiMeo v. Nupetco Associates

¶10 Finally, we consider the district court’s dismissal of
Nupetco’s counterclaim. The counterclaim, as sought to be
amended, requested foreclosure of the trust deed and a judgment
against Michael Strand, whom Nupetco wished to have added as
a party, in order to obtain a deficiency judgment for any obligation
still owed following sale of the secured property. The district court
determined that Michael’s obligation was irrelevant to the
proceedings. However, having determined that the district court
erred in ruling that Vern and Eleanor had become sureties and that
the trust deed was unenforceable, we conclude that the dismissal
of the counterclaim was also in error. Because the trust deed can
still be foreclosed—and must be before Nupetco may seek a
deficiency judgment against Michael—both Michael’s liability and
foreclosure of the trust deed were absolutely relevant, and the

2. (...continued)
most importantly, Vern and Eleanor agreed to such modifications
by the terms of their trust deed. The trust deed provides, with our
emphasis, that payments will be made “payable to the order of
Beneficiary at the times, in the manner and with interest as therein
set forth, and any extensions and/or renewals or modifications therein
or thereof.” The modifications made to the payment schedule are
well within the scope of this standard modification clause.
Extending the payment date or allowing interest‐only payments
are not such extreme changes as would render the modification
clause inapplicable or the contract void. Cf. Nature’s Sunshine
Prods., Inc. v. Watson, 2007 UT App 383, ¶¶ 13–15, 174 P.3d 647
(explaining that modification clauses in trust deeds allow parties
to make routine modifications to payment arrangements without
affecting the trust deed’s priority so long as future lenders can
reasonably assess their financial position, but extraordinary
changes—in that case, modifying the original terms to include a
new loan “totally unrelated to the original transaction” and for
more than sixteen times the original principal—will not qualify as
a modification).

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answer and counterclaim should not have been dismissed. And the
amendment sought by Nupetco should have been permitted.

¶11 We reverse the partial summary judgment in favor of DiMeo
and remand with instructions to grant partial summary judgment
in favor of Nupetco and to reinstate Nupetco’s counterclaim
seeking foreclosure of the trust deed, as well as to permit its
amendment.

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