MOVING PARTY: Plaintiff Comerica Bank

RESPONDING PARTY: Defendant LawDragon Inc.

BACKGROUND This case arises from an alleged breach of a loan agreement. Defendant Lawdragon Inc. executed a revolving Master Revolving Note (“Note”) in favor of Plaintiff Comerica Bank in the principal amount of $450,000 with a stated maturity date of May 30, 2010. (Undisputed Material Fact (“UMF”) No. 1.) The parties then executed seven amendments to the Note that ultimately extended the maturity date of the Note to May 1, 2016. (UMF Nos. 2-8.)

Defendant disputes the validity of three of the amendments: (1) a Modification Agreement executed on August 15, 2011, extending the maturity date to September 30, 2011 (Plaintiff’s Ex. E); (2) a Modification Agreement executed on May 1, 2012 that extended the maturity date of the Note to September 30, 2012 (Plaintiff’s Ex. F); and (3) a Modification Agreement executed on September 30, 2014 which extended the maturity date of the Note to May 1, 2016 (Plaintiff’s Ex. H). Defendant argues that the 2011 amendment is void because several contingencies were not met, including obtaining the signature of the guarantor (Tom Girardi). As to the 2012 amendment, Defendant argues it was not signed by its corporate officer, only by Girardi who did not have the actual or apparent authority to bind Defendant. (Dewey Decl. ¶2). As to the 2014 amendment, Defendant argues the signature of its corporate officer (Katrina Dewey) is a forgery. (Dewey Decl. ¶6.) Based on the foregoing, Defendant argues that the last valid modification agreement was the one executed on June 7, 2011 which extended the maturity date of the loan to July 31, 2011. (Plaintiff’s Ex. D.)

There is no dispute Defendant defaulted on the loan, although the parties disagree on the date of default. Plaintiff argues that the default happened when Defendant failed to pay the Note balance in full when the Note matured on May 1, 2016. (UMF No. 11.) Defendant argues that the Note went into default on July 31, 2011, when the bank shut off its line of credit. (Dewey Decl. ¶1.)

The Bank alleges that the unpaid principal balance due on the Note is $450,000. (UMF No. 31.) As of December 27, 2022, earned unpaid interest due under the Note is $249,651.58 (UMF No. 14.) The Bank also seeks attorneys’ fees incurred prior to the commencement of this action as well as in prosecuting this action, both of which are recoverable under the terms of the Note. (UMF Nos. 15-17.)

In addition to the Note, the parties executed two Security Agreements, pursuant to which Defendant granted to Plaintiff a security interest in substantially all of Defendant’s personal property assets (the “Collateral”) to secure repayment of Defendant’s debts to Plaintiff. (UMF Nos. 18, 20.) Plaintiff perfected its security interest in the Collateral by filing a UCC-1 Financing Statement with the

Delaware Secretary of State. (UMF No. 19.) Plaintiff then filed three continuation statements to continue the effectiveness of the UCC-1 filing. (UMF Nos. 22-24.)

Defendant defaulted on the Security Agreements by failing to repay the Note. (UMF No. 27.) As a result of the default, Plaintiff is entitled to foreclose its security interest in the Collateral. (UMF No. 28.) The Security Agreements provide for the Bank to recover its attorneys’ fees incurred in this action. (UMF No. 29.)

This hearing is on Plaintiff’s motion for summary judgment or in the alternative for summary adjudication. Plaintiff argues it has established all the elements of its first cause of action for breach of the Note, and second cause of action for breach of the Security Agreements. Plaintiff also argues that Defendants’ affirmative defenses, particularly its defense of statute of limitations, are without merit as a matter of law.

REQUEST FOR JUDICIAL NOTICE

Plaintiff requests judicial notice of a UCC-1 Financing Statement, amendments to the UCC-1 filing, and continuation statements, all filed with the Delaware Secretary of State. The Court grants the unopposed request pursuant to Evid. Code, §§ 452(c), 452(h) and 453.

TIMELINESS

 Plaintiff objects to the timeliness of Defendant’s opposition. Code Civ. Proc. § 1005(c) requires all opposition and reply papers to be served by personal delivery, fax, overnight delivery or other means that are reasonably calculated to ensure delivery to the other party not later than the close of the next business day. Defendant served its documents by regular U.S. mail, which Plaintiff did not receive until two calendar days prior to the deadline for Plaintiff’s reply. And the documents failed to include a supporting declaration to the opposition.

The court exercises its discretion to consider the late-served opposition, but cautions Defendant that the Court in the future may exercise its discretion to refuse to consider untimely filings. The Court

will address the late served papers only because the Court finds the untimeliness of the papers have not prejudiced Plaintiff, as the Court would have reached the same outcome even absent the opposition.

LEGAL STANDARD

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Ritchfield Co. (2001) 25 Cal.4th 826, 843.) Code Civ. Proc. §437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Minor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67).

As to each claim as framed by the complaint, the plaintiff must satisfy the initial burden of proof by presenting facts to establish an essential element or to negate a defense. (Code Civ. Proc. §437c(p)(2); Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

Once the moving party has met that burden, the burden shifts to the opposing party to show that a triable issue of one or more material facts exists as to that cause of action or a

defense thereto. To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

ANALYSIS

 Plaintiff moves for summary judgment on two causes of action for breach of contract. To state a cause of action for breach of contract, Plaintiff must establish (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) Plaintiff has met its initial burden of presenting evidence to support each of these elements.

As to the breach of the Note, Plaintiff has presented evidence that (1) the parties executed the Note which maturity date was extended to May 1, 2016 via multiple amendments (UMF Nos. 1-8); (2) Plaintiff performed all things it was required to perform under the Note (UMF No. 9); (3) Defendant defaulted on the Note (UMF Nos. 11-12), and (4) Plaintiff has been damaged by Defendant’s breach in the principal amount of $450,000 plus interest, attorneys’ fees and costs. (UMF Nos. 13-17.)

 As to the breach of the Security Agreements, Plaintiff has presented evidence that (1) the parties executed two Security Agreements in favor of Plaintiff pursuant to which Defendant granted Plaintiff a security interest in the Collateral, and the security interest was perfected by making the required UCC filings (UMF Nos. 18-24), (2) Plaintiff has performed all things it was required to perform under the Security Agreements (UMF No. 26), (3) Defendant defaulted on the Security Agreements by failing to repay the Note (UMF No. 27), and (4) Plaintiff has been damaged by Defendant’s breach in the amount of the unpaid Note and is entitled to foreclose its security interest in the Collateral and to recover its attorneys’ fees. (UMF Nos. 28-29.)

Because Plaintiff has met its initial burden, the burden shifts to Defendant to produce substantial responsive evidence to establish a triable issue of material fact. To meet its burden, Defendant argues that the applicable statute of limitations is four years, and so the limitations period expired in 2020,

which means Plaintiff’s complaint (filed in March 2021) is time-barred. According to Defendant, the Note is a revolving line of credit which is a non-negotiable instrument, and non-negotiable instruments are merely contracts subject to the four-year statute of limitations. The Court agrees.

The six year statute of limitations in Comm. Code §3118(a) applies only to negotiable instruments. (Bank of Am. v. Garcia, 2021 Cal. Super. LEXIS 72039 at *3-*4; Laser v. Corporal Bldg. Servs. Imaged, 2020 Cal. Super. LEXIS 35752 at *2-*3.) Accordingly, application of the statute of limitations requires a determination of whether the Note is a negotiable instrument. Comm. Code §3104(a) defines a negotiable instrument as “an unconditional promise or order to pay a fixed amount of money” so long as it is also all of the following: (1) payable to the bearer or to order; (2) payable on demand or at a definite time, and (3) contains no other undertaking or instruction by the obligor beyond the payment of money. Plaintiff argues the Note falls squarely within this definition. The first paragraph of the Note contains Defendant’s promise to pay to the order of Plaintiff a sum certain by a stated maturity date.

But as Defendant points out, the Note is not for a fixed amount but is for a revolving line of credit where Defendant may borrow up to the credit limit of $450,000, repay any portion of the amount borrowed and re-borrow up to the amount of the credit limit. (Plaintiff’s Exhibit A (“This Note is a note under which advances, repayments and re-advances may be made from time to time, subject to the terms and conditions of this Note.”).)

While the Court is not aware of any California decision addressing the issue of whether a line of credit is a negotiable instrument and neither party points us to any binding authority, other courts have addressed this issue, and the Court finds their reasoning persuasive.

 In Heritage Bank v. Bruha (Neb. 2012) 812 N.W. 2d 260, 266, the Nebraska Supreme Court noted that a “fixed amount is an absolute requisite to negotiability. This is because unless a purchaser can determine how much it will be paid under the instrument, it will be unable to determine a fair price

to pay for it, which defeats the basic purpose for negotiable interests . . . To meet the fixed amount requirement the fixed amount generally must be determinable by reference to the instrument itself without any reference to any outside source. If reference to a separate instrument or extrinsic facts is needed to ascertain the principal due, the sum is not certain or fixed.” (Id. at 270.) The Nebraska Supreme Court concluded that a promissory note failed the “fixed amount of money” requirement because the note stated that it “evidence[d] a revolving line of credit” and the borrower “promise[d] to pay ‘the principal amount … or so much as may be outstanding …”. The court reasoned that, given this language “one looking at the instrument cannot tell how much the [borrower] has been advanced at any given time.” (Id. at 268.)

Likewise, in CadleRock Joint Venture LP v. Esperanza Architecture & Consulting Inc., 2021 COA 119, the Colorado Court of Appeals concluded that a line of credit is not a negotiable instrument because it fails the “fixed amount of money” requirement. (Id. at P18). As in this case, the credit agreement there allowed the borrowers to draw on the line of credit, repay the loan and then re-borrow up to the credit limit. Likewise, while the credit agreement specified an upper limit to the total amount advanced, it allowed the borrowers to draw less than the limit or to draw more than the limit over the course of the loan by repaying and re-borrowing. As a result, “the amount the borrowers promised to pay could fluctuate significantly over the course of the loan. This means that, without knowing the total advanced, the amount the borrowers promised to pay cannot be determined from the Credit Agreement. Thus, the Credit Agreement does not reflect a promise or order to pay a ‘fixed amount’ and is not a negotiable instrument.” (Id.)

In Resolution Trust v. Oaks Apartments Joint Venture (5th Cir. 1992) 966 F.2d 995, the Fifth Circuit reached a similar result. In Resolution Trust the operative language contained in the note included a promise of the maker to pay “the sum of $2,000,000 … or so much thereof as may be advanced.” (Id. at 1001.) This language is virtually identical to the Note in this case. The Fifth Circuitconcluded that the language employed by the note fails to disclose the exact amount to be repaid by the borrowers. The amount advanced to the borrowers cannot be certainly determined absent an inquiry to other documents. Since the note does not facially demand payment of a sum certain, the note is “nonnegotiable.” In reaching this decision, the Fifth Circuit relied upon the Uniform Commercial Code as adopted by Texas which included a requirement that a negotiable instrument “contain an unconditional promise to pay a sum certain in money, on demand or at a definite time, to order or bearer.”(Id. at 1001, fn. 8.)

 Many other jurisdictions have reached similar results. (See, e.g., Yin v. Soc’y Nat’l Bank Ind. (Ind. Ct. App. 1996) 665 N.E.2d 58, 62 (concluding an agreement for “$2,000,000 … or so much thereof as may be advanced” was not a negotiable instrument because “the amount advanced to the parties could not be determined with certainty absent an inquiry to other documents”); Cadle Co. v. Allshouse (Pa. Ct. Com. Pl. Mar. 16, 2006) 2007 Pa. Dist. & Cnty. Dec. LEXIS 102 at *5-*6 (finding an agreement was “not for a fixed amount, but rather is a line of credit that permitted [the borrower] to draw advances”) aff’d 959 A.2d 455 (Pa. Super. Ct. 2008); OneWest Bank N.A. v. FMCDH Realty Inc. (App. Div. 2018) 83 NY.S. 3d 612, 616-17 (noting that in multiple jurisdictions, “line of credit agreements have been held to be distinct from an agreement to pay a sum certain”); Am. First Fed., Inc. v. Gordon, 2015 Conn. Super. LEXIS 1365 at *24-*31 (Conn. Super. Ct. May 26, 2015) (where “[t]he document contemplates advances, the potential payment of advances in whole or in part, coupled with the ability to request further advances” it is not a promise to pay a “fixed amount of money”); Cadle Co. v. Richardson (La Ct. App. 1992) 597 So. 2d 1052, 1055 (agreement extending line of credit up to a limit is “not a guarantee to pay another’s account up to a sum certain”); see also Farmers Prod. Credit Ass’n v. Arena (Vt. 1984) 481 A.2d 1064, 1065 (holding an agreement allowing “future advances” was not a negotiable instrument).)

Based on the holdings in the foregoing cases, the Court concludes the Note is not a negotiable instrument as it is not for a fixed sum but rather the amounts due fluctuate based on Defendant’s borrowings up to the credit limit. The amounts due cannot be determined from the face of the Note but require resort to other documents. Accordingly, the note is a contract subject to the four year statute of limitations in Code Civ. Proc. §337. Under this limitations period, and even assuming the validity of all the modification agreements, Plaintiff’s claims would have expired by May 1, 2020. Plaintiff did not file its complaint until March 21, 2021. Accordingly, Plaintiff’s claims are time-barred.

CONCLUSION

Based on the foregoing, the Court DENIES Plaintiff’s motion for summary judgment or in the alternative for summary adjudication.

DATED: February 7, 2023


 ___________________________

Edward B. Moreton, Jr.

Judge of the Superior Court