Judge: George F. Bird, Jr., Case: 22CMCV00708, Date: 2023-03-09 Tentative Ruling

“INSTRUCTIONS:
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tentative ruling. If any party declines to submit on the tentative ruling, then
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Case Number: 22CMCV00708    Hearing Date: March 9, 2023    Dept: B

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES – SOUTH CENTRAL DISTRICT

I.       BACKGROUND

            Plaintiff Washington State Employees Credit Union (“Plaintiff”) filed the Complaint on December 19, 2022, alleging a breach of contract by Defendant Charles Gaither (“Defendant”). Defendant allegedly executed a Retail Installment Sale Contract (“Sale Contract”) with Jaguar-Landrover Bellevue for the purchase of a used 2009 Mercedes Benz CL63 AMG (the “Vehicle”). (Complaint (“Compl.”), ¶ 7.) Plaintiff alleges that the Sale Contract assigns the interest of Jaguar-Landrover Bellevue to Plaintiff. (Ibid.) Plaintiff alleges “The Retail Contract provides that Defendant Gaither promised to pay Plaintiff the sum of $104,655.60 ($79,323.41 for the amount financed and $25,332.19 for the finance charge), with interest thereon at 8.14%, by remitting to Plaintiff monthly payments of $1,245.90, commencing on April 21, 2013 and ending April 21, 2020 (84 payments) or when paid in full.” (Compl., ¶ 9.)

            Defendant allegedly defaulted under the terms of the Sale Contract by failing to make a payment due on May 25, 2018. (Compl., ¶ 12.) As a result of the breach, Plaintiff allegedly exercised their right to repossess the Vehicle under the Sale Contract. (Compl., ¶ 13.) After repossession, on or about October 12, 2018, Defendant was allegedly informed that the Collateral had been sold at an auction in the amount of $15,000.00 and that, after deducting said sale price from the total balance, the total amount due and owing under the account was $21,178.77.” (Compl., ¶ 15.) Plaintiff now brings a cause of action for breach of contract.

II.       DEMURRER

A.    Demurrer filed on February 7, 2023.

            Defendant argues that the statute of limitations on the claim for breach of contract has expired. Defendant argues that the applicable statute of limitations is the four-year statute of limitations for the sale of goods under the Uniform Commercial Code section 2725. Defendant states that the breach of contract happened on May 25, 2018, when Defendant failed to remit payment under the Sale Contract, thus the statute of limitations ran on May 25, 2022.

B.     Opposition filed on February 24, 2023.

            Plaintiff argues that a demurrer merely tests the sufficiency of the complaint on its face and that the objection to timeliness of the filing is not a proper consideration on a demurrer. Plaintiff also argues that the choice of law provision in the Sale Contract applies the laws of the state of Washington which gives a six-year statute of limitations on a claim for breach of a written contract.

C.     Reply filed on March 2, 2023.

            Defendant argues that, under Washington law, this action is still time barred as a four-year statute of limitations applies under Revised Code of Washington section 62A.2-725[1].

III.       LEGAL STANDARDS

A demurrer tests the legal sufficiency of the factual allegations in the complaint. (K.G. v. S.B. (2020) 46 Cal.App.5th 625, 630.) “The purpose of a demurrer is to test whether, as a matter of law, the properly pleaded facts in the complaint state a cause of action under any legal theory.” (Olson v. Hornbrook Community Services Dist. (2019) 33 Cal.App.5th 502, 516.) In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint in favor of plaintiff. (Code Civ. Proc., § 452; See Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.) “Where the complaint's allegations or judicially noticeable facts reveal the existence of an affirmative defense, the ‘plaintiff must “plead around” the defense, by alleging specific facts that would avoid the apparent defense. Absent such allegations, the complaint is subject to demurrer for failure to state a cause of action….’” (Gentry v. eBay, Inc. (2002) 99 Cal.App.4th 816, 824 [121 Cal.Rptr.2d 703].)

IV.       DISCUSSION

            Both parties agree that the breach accrued on or about May 25, 2018, when Defendant failed to make the required payments under the Sale Contract. (Demurrer p. 1:18-19; Opposition p. 3:26-28.) The parties disagree about the statute of limitations applicable to this action.

            Plaintiff argues that the Sale Contract at issue contains a choice of law provision that applies the laws of the state of Washington to the Sale Contract. Defendant does not object to applying Washington state law to the Sale Contract. The Sale Contract presented by Plaintiff attached to the Complaint, and relied on by Defendant, states “Federal law and the law of the state of our address shown on the front of this contract apply to this contract.” (Compl., Exhibit 1, Other Important Agreements ¶ 7.) The address of Plaintiff on the front page of the Sale Contract is in Washington state. (Compl., Exhibit 1.)

            When applying Washington state law, Plaintiff argues Revised Code of Washington section 4.16.040, subdivision (1), gives Plaintiff six years to bring this action from the date of accrual of the cause of action. Defendant argues that Revised Code of Washington section 62A.2-725, subdivision (1), only gives Plaintiff four years to bring this action from the date of accrual of the cause of action. If the applicable statute of limitations is four years, Plaintiff’s action is untimely. If the applicable statute of limitations is six years, Plaintiff’s action is timely.

            Revised Code of Washington section 4.16.040, subdivision (1), states “The following actions shall be commenced within six years: (1) An action upon a contract in writing, or liability express or implied arising out of a written agreement, except as provided for in RCW 64.04.007(2).” Revised Code of Washington section 62A.2-725, subdivision (1), states “An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.”

            The United States District Court of Washington in Gray v. Suttell & Associates (E.D. Wash. 2015) 123 F.Supp.3d 1283, addressed the tension between Revised Code of Washington section 4.16.040, subdivision (1), and the Uniform Commercial Code section 2-725, subdivision (1), which is identical to Revised Code of Washington section 62A.2-725, subdivision (1). The United States District Court of Washington stated,

“Where a sales contract creates a secured loan agreement between the seller of a good and the buyer, courts view the contract as a ‘hybrid agreement, constituting both a contract for sale and a secured transaction’ and hold that a suit by the seller for the deficiency is also governed by Article 2's four-year statute of limitations. Scott v. Ford Motor Credit Co., 345 Md. 251, 255, 257, 258, 262, 691 A.2d 1320 (1997) (citing Assoc. Discount Corp. v. Palmer, 47 N.J. 183, 219 A.2d 858 (1966)); see also Ford, 345 Md. at 258–60, 691 A.2d 1320 (collecting cases in agreement); Ford Motor Credit Co. v. Arce, 348 N.J.Super. 198, 199, 791 A.2d 1041 (N.J.Super.Ct.2002) (holding that retail installment contract entered to finance purchase of car was subject to Article 2's four-year statute of limitations). Even if a bank subsequently purchases a seller's interest in a contract that was originally between buyer and seller and sues to enforce the contract, the suit is still governed by Article 2. Citizen's Nat'l Bank of Decatur v. Farmer, 77 Ill.App.3d 56, 59, 32 Ill.Dec. 740, 395 N.E.2d 1121 (Ill.Ct.App.1979).

            On the other hand, if the sale of goods is financed according to a separate agreement between the buyer and a bank or even a separate agreement between the buyer and seller, Article 2's statute of limitations does not apply. When an individual buys a vehicle using a loan from a bank that is secured by the vehicle, the transaction between the bank and the buyer is not a sale of goods governed by Article 2 and the bank's suit to recover the balance due is not subject to a four-year statute of limitations. BancOhio Nat'l Bank v. Freeland, 13 Ohio App.3d 245, 247, 468 N.E.2d 941 (Ohio Ct.App.1984).” (Gray v. Suttell & Associates, supra, 123 F.Supp.3d at pp. 1289–1290.)

            The United States District Court of Washington summarized by stating “Article 2's four-year statute of limitations applies to a transaction between a buyer and a seller for the sale of goods. A separate, distinct agreement between buyer and seller to finance the sale or a separate agreement between buyer and a bank leading to a tripartite relationship will not be governed by Article 2.” (Gray v. Suttell & Associates, supra, 123 F.Supp.3d at p. 1291.P)

            Revised Code of Washington section 62A.2-725, subdivision (1), is intended to parallel the Uniform Commercial Code Article 2 discussed in Gray as the language of both sections is identical and Revised Code of Washington section 62A was enacted “To make uniform the law among the various jurisdictions.” (Wash. Rev. Code Ann. § 62A.1-103, subd. (a)(3).)

            Here, the Sale Contract is between the buyer and seller for the sale of the Vehicle and the Sale Contract includes the financing terms. There is not a separate financing agreement between the parties. In conformity with Gray, because the Sale Contract creates and includes a financing agreement between the parties, the agreement is considered a hybrid agreement and this action is governed by a four-year statute of limitations provided by Revised Code of Washington section 62A.2-725, subdivision (1).

As the parties agree that the action accrued on May 25, 2018, Plaintiff had until May 25, 2022, to commence this action. This action was filed on December 19, 2022, and it is untimely under Revised Code of Washington section 62A.2-725, subdivision (1). Because Plaintiff has failed to plead-around the affirmative defense that the statute of limitations has run, Plaintiff’s Complaint is subject to demur for failure to plead a cause of action. (See Gentry v. eBay, Inc., supra, 99 Cal.App.4th at p. 824.)

Based on the foregoing, this Demurrer is SUSTAINED as to the cause of action for breach of contract.

Plaintiff bears the burden of demonstrating that leave to amend could cure the defects in the pleading and Plaintiff has not satisfied their burden. (Shimmon v. Franchise Tax Bd. (2010) 189 Cal.App.4th 688, 692 [117 Cal.Rptr.3d 430, 434].) Plaintiff failed to offer any argument in their Opposition that amendments could be made to plead around this defense.

Based on the foregoing, leave to amend is DENIED.

V.       CONCLUSION

            This Demurrer is SUSTAINED without leave to amend.       

Dated: March 9, 2023                                                 __________________________________

                                                                                                Judge of the Superior Court