JB Mortgage Co., LLC v. Ring

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15-P-1258 Appeals Court

JB MORTGAGE CO., LLC vs. JORDAN L. RING, THIRD, & another.1

No. 15-P-1258.

Middlesex. May 18, 2016. - August 26, 2016.

Present: Katzmann, Carhart, & Sullivan, JJ.

Guaranty. Limitations, Statute of.

Civil action commenced in the Superior Court Department on
March 4, 2014.

The case was heard by Peter B. Krupp, J.

Michael P. Utke (Steven F. Smoot with him) for the
plaintiff.
Luke Rosseel for Jordan L. Ring, III.

KATZMANN, J. The plaintiff, JB Mortgage Co., LLC, appeals

from a judgment of the Superior Court dismissing its action to

enforce defendant Jordan L. Ring, III's guaranty of a promissory

note secured by a mortgage on real property. The trial judge

1
Edward C. Simonian. The proceedings against Simonian were
stayed as a result of his bankruptcy and were ultimately
dismissed by the plaintiff. Simonian is not a party to this
appeal.
2

found that the plaintiff's suit was barred by the applicable

statute of limitations because it was filed more than twenty

years after a default existed on the underlying note. The

central issue before us is when the cause of action on the

guaranty of the note accrued. We affirm.

Background. On July 21, 1988, Edward C. Simonian, as

trustee of the DX Trust (trust), executed a promissory note in

favor of Bank Five for Savings (bank) in the face amount of

$400,000. Under the note, the trust was required to make

monthly payments of principal and interest, with all remaining

unpaid balances due two years from the date of execution. In

addition to other penalties for failure to make timely payments,

the note provided that, "If default be made in the payment of

any installment under this note, or if there is a failure to

carry out the terms and conditions of the mortgage or any other

instrument given as security for this note, . . . the entire

principal sum and accrued interest shall at once become due and

payable without notice at the option of the holder of this

note."2 The note was secured by a first mortgage on commercial

property in Hull.

The note was also backed by a guaranty executed by Simonian

and Ring under seal the same day, July 21, 1988. In pertinent

part, the guaranty stated:

2
See note 9, infra.
3

"[T]he undersigned hereby guarantees to the
[b]ank the prompt payment and the faithful
performance and observance of every liability,
obligation, covenant and condition . . . to be
paid, performed or observed by the [trust] under
said [p]romissory [n]ote, [r]eal [e]state
[m]ortgage and [s]ecurity [a]greement,
[a]ssignment of [l]eases and [r]entals, and
[f]inancing [s]tatement.

"The liability of the undersigned hereunder is
direct and unconditional, and joint and several,
and the [b]ank shall not be required to pursue or
exhaust any of its rights or remedies against the
[trust], or any other guarantor or endorser . . .
or to resort to any security before enforcing
this [g]uaranty against any of the undersigned."

On February 28, 1991, the bank and the trust agreed to

extend the term of the note until July 21, 1994, and to increase

the interest rate.3 Thereafter, the bank went into liquidation

and, on September 20, 1991, the Federal Deposit Insurance

Corporation (FDIC) became the liquidating agent. On May 26,

1994, the FDIC foreclosed on the property secured by the

mortgage, selling it for $165,000 and leaving a substantial

deficiency. As of December, 1995, the trust still owed an

outstanding balance of $362,193.26 with a total amount then due

of $417,591.53. The interest on the debt was continuing to

accrue at 11.75 per cent annually.

3
By its terms, the guaranty was not to be affected by any
modification or alteration of the underlying note or related
agreements, to which the guarantors were deemed to have
assented. In any event, Ring and Simonian each individually
consented to the modification as guarantors.
4

Pursuant to a chain of assignments from the FDIC through

several intermediary holders, the trust's debt was ultimately

acquired by the plaintiff. The plaintiff commenced this action

on March 4, 2014, to, inter alia, enforce the guaranty against

Ring.

In an October 8, 2014, memorandum of decision and order on

various pending motions, including the parties' initial cross

motions for summary judgment, the judge initially concluded that

the action was timely under the applicable twenty-year statute

of limitations of G. L. c. 260, § 1, whether measured from the

modified due date on the note or the date of the foreclosure.

The judge, however, denied summary judgment on the basis that

there was a material dispute of fact whether the assignments in

the chain leading to the plaintiff's acquisition of the trust's

debt included the guaranty.

After the parties had once again cross-moved for summary

judgment, the judge concluded in a memorandum and order dated

April 1, 2015, that the chain of assignments was sufficient to

enable the plaintiff to enforce the guaranty, but questioned the

correctness of the statute of limitations analysis in his

previous decision. Specifically, the judge found that if the

foreclosure of the security was accomplished by May 26, 1994,

there was "compelling weight" to the inference that the trust

must have been in default prior to March 4, 1994, which would
5

have been more than twenty years before the plaintiff commenced

this action. Given the terms of the guaranty, the judge

reasoned that a cause of action would have accrued and the

statute would have begun to run upon the failure of the trust to

make a payment when due or meet some other obligation under the

note. The judge, however, yet again denied summary judgment

because, despite the compelling inference, the record was not

sufficient to definitively resolve the factual question of when

the default took place.

Although the case was marked for trial, the parties agreed

to treat a final pretrial conference hearing as a jury-waived

trial. Based on that proceeding, the judge found that by June

21, 1993, the note was already in default. Accordingly, the

judge ruled that the plaintiff's complaint was barred by the

applicable twenty-year statute of limitations.

Discussion. 1. Standard of review. The parties agree on

the facts as recited and that the plaintiff's action is subject

to the twenty-year statute of limitations applicable to

contracts under seal pursuant to G. L. c. 260, § 1. The sole

point of disagreement is the accrual date of the cause of

action, a legal question that we review de novo based on the

undisputed facts. See Crocker v. Townsend Oil Co., 464 Mass. 1,

5 (2012).
6

2. Accrual date. Although the plaintiff initially

contended in its brief that the accrual date should be

determined with reference to a now-repealed provision of the

Uniform Commercial Code (UCC), it conceded at oral argument that

the UCC was inapplicable to the personal guaranty at issue here,

which is a separate contract and not a negotiable instrument.4

The plaintiff nonetheless insists that the cause of action under

the guaranty could not have accrued until the date of the

foreclosure sale at the earliest. We disagree.

"The terms of the guaranty and of the note generally

control when the claim against the guarantor accrues, typically

either from the point at which the primary maker defaults on the

guaranteed note or at some later point when a demand has been

made on the guarantor for payment." Beckley Capital Ltd.

Partnership v. DiGeronimo, 184 F.3d 52, 58 (1st Cir. 1999).5 See

Phoenix Acquisition Corp. v. Campcore, Inc., 81 N.Y.2d 138, 141

(1993) ("The contractual language fixes the boundaries of the

legal obligation of the guarantor"). Thus, the statute begins

to run on different guaranties at different times. See, e.g.,

National Shawmut Bank of Boston v. Fitzpatrick, 256 Mass. 125,

4
Accordingly, we do not address the plaintiff's arguments
under the former G. L. c. 106, § 3-122.
5
The plaintiff does not contend that its status as a
downstream assignee of the FDIC affects the limitations period
here. See Beckley Capital Ltd. Partnership, supra at 55.
7

131 (1926) (statute of limitations on guaranty securing payment

of note payable on demand begins to run on date of execution of

guaranty); McDonald v. National Enterprises, Inc., 262 Va. 184,

192-193 (2001) (statute of limitations did not begin to run

until demand was made where guarantor agreed to pay all sums

owed by borrower when in default "upon demand by the [l]ender,

without notice other than such demand").

Here, the defendant guaranteed prompt payment and faithful

performance of every condition under the note and specifically

relieved the holder from having to pursue or exhaust any rights

or remedies against the trust or the security before enforcing

the guaranty. As the Supreme Judicial Court explained as long

ago as Roth v. Adams, 185 Mass. 341, 343 (1904), where the

"punctual performance on the part of the [principal] of the

covenants of the [contract] was guaranteed," failure by the

principal to make payment "at the time when it became due and

payable would be a breach of his covenant, and a cause of action

would at once accrue to the [obligee] against the defendant."

Accordingly, the cause of action against the defendant accrued

upon the trust's default.

The plaintiff contends that the cause of action against the

guarantor could not have accrued until after the foreclosure

sale because the amount of any deficiency remaining

postforeclosure could not have been determined at that time.
8

This argument ignores the express terms of the guaranty, which

provided that the holder need not "pursue or exhaust any of its

rights or remedies against the [trust]" or "resort to any

security before enforcing this [g]uaranty against" Ring.

"[W]hile [Ring] might have made his promise to pay contingent on

the failure of his principal to pay any judgment the [note

holder or its assignee] might recover if he failed to keep this

covenant, it is a sufficient answer to say that he did not do

so, but was content to make his liability unconditional and

absolute." Ibid. See Seabury v. Sibley, 183 Mass. 105, 107

(1903) ("A creditor is not bound to sue the principal debtor,

but has the right to elect to sue the guarantor").

Although Roth was decided more than a century ago, its

reasoning remains sound. We note that it is consistent with

longstanding precedent and more recent decisions from other

jurisdictions.6 Cadle Co. v. Webb, 66 Mass. App. Ct. 269, 271

(2006), on which plaintiff relies, is not to the contrary. The

6
See Cummins v. Tibbetts, 58 Neb. 318 (1899) ("A cause of
action upon the guaranty accrued the moment default was made in
the payment of the note; Production Credit Assn. of Midlands v.
Schmer, 233 Neb. 749, 756 (1989) ("The statute of limitations
begins to run against a contract of guaranty the moment a cause
of action first accrues. . . . A guarantor's liability arises
when the principal debtor defaults"); Western Bank of
Albuquerque v. Franklin Dev. Corp., 111 N.M. 259, 260-261 (1991)
(collecting cases) "); Estate of Bitker, 251 Wis. 538, 544
(1947) ("When the principal fails to perform the acts
performance of which is guaranteed the guarantors are liable
from the time of the breach").
9

court in Cadle Co. did not actually use the foreclosure date as

the accrual date but only as a point of reference for a suit

that had to be filed within six years of accrual and was not

filed until eleven years after foreclosure and so was obviously

filed more than six years after accrual. The question of the

accrual date was not actually before the court, nor did the

court address it.

To be sure, guaranties can be drafted in such a way that

the statute would not begin to run until the creditor has

proceeded against the security. See, e.g., Whitehurst v. Duffy,

181 Va. 637, 642-643 (1943) (where guaranty expressly provided

that guarantor's liability could not be determined until

creditor proceeded against security, guaranty was "conditional

promise" and guarantor "was not to be called upon to pay the

note, or the balance due thereon, until it had been 'determined'

by a foreclosure . . . that the security was insufficient to

liquidate the debt"). However, that was not the case here. See

Pierce v. Merrill, 128 Cal. 464, 469 (1900) (rejecting

contentions that guaranty was subject to condition precedent,

that security be exhausted before guarantors' liability arose

and before any action could be maintained against them, and that

statute did not begin to run until mortgage was foreclosed and

deficiency ascertained where "guaranty was absolute and

unconditional" and "a breach thereof occurred, upon which to
10

base an action, when the note therein mentioned fell due and

remained unpaid").

As aptly stated in a decision from another jurisdiction:

"Whether or not the condition contended for [by the plaintiff]

attached to the guaranty is to be determined from the language

of the contract. . . . The language of the contract does not

import any such condition, but, on the contrary, negatives any

presumption to that effect. To hold that payment was not to be

made by defendant[] until after a foreclosure of the mortgage

would be to ignore" the terms of the guaranty. Id. at 470.7

Because the judge found that the note was in default by June 21,

1993,8 and because the holder was free to proceed against the

7
Contrary to the plaintiff's contentions, that the guaranty
may have covered obligations in addition to the note does not
preclude accrual of the cause of action of defendant's guaranty
of the note at the time of default thereunder.
8
In so holding, the trial judge relied on a summons issued
in a Land Court action brought pursuant to the Soldiers and
Sailors Civil Relief Act of 1940, now known as the
Servicemembers Civil Relief Act (Act), recorded in the Plymouth
county registry of deeds on June 21, 1993. The trial judge and
the parties refer to this document as a complaint to foreclose,
but an action brought pursuant to the Act is limited to a
determination whether the mortgagor is entitled to the benefit
and protections of the Act. See Beaton v. Land Court, 367 Mass.
385, 388 (1975); HSBC Bank, USA, N.A. v. Matt, 464 Mass. 193,
194 (2013). We note that it was reasonable for the judge to
conclude from the existence of the Soldiers' and Sailors' action
as of June 21, 1993, that the loan was in default by that date,
and certainly before March 4, 1994, the last day on which a
default could have occurred to bring the action within the
twenty-year statute of limitations.
11

defendant under the guaranty upon default,9 the statute of

limitations would have run no later than June 21, 2013, nearly

nine months before the plaintiff commenced this action. The

action was therefore properly dismissed as time barred.10

Judgment affirmed.

9
No party has suggested that the note was not properly
accelerated as of some date prior to March 4, 1994.
10
The defendant's motion for appellate fees and costs is
denied. The plaintiff's appeal is not frivolous. See Mass.
R.A.P. 25, as appearing in 376 Mass. 949 (1979); Worcester v.
AME Realty Corp., 77 Mass. App. Ct. 64, 72-73 (2010).