Alpacas of America, LLC v. Groome
Alpacas of America, LLC v. Groome
Opinion of the Court
¶1 — Alpacas of America LLC (AOA) appeals the trial court’s dismissal of its lawsuit to recover on two promissory notes that Sam and Odalis Groome executed in conjunction with sales contracts. At issue in this appeal is whether the four-year statute of limitations for sales contracts or the six-year statute of limitations for negotiable instruments applies here. The parties agree that the six-year statute applies if the notes qualify as “negotiable instruments” under article 3 of the Washington Uniform Commercial Code (WUCC), Title 62A RCW. We hold that the promissory notes here are negotiable instru
FACTS
¶2 The Groomes twice entered into sales contracts with AOA to purchase alpacas, and both times they financed the purchases. First, on January 14, 2006, the Groomes purchased “Phashion Model” and financed $18,750 over four years. Second, on January 13, 2007, they purchased “Black Thunder’s Midnight” and financed $20,250. In conjunction with each sales contract, the Groomes executed a promissory note, outlining a payment schedule to satisfy the alpaca purchases. Each promissory note contained a security agreement.
¶3 In April 2012, AOA sued the Groomes, alleging that in October 2007, the Groomes stopped making payments and defaulted on the promissory notes. In its complaint, AOA alleged that the Groomes purchased alpacas from AOA pursuant to the sales contracts and promissory notes. AOA attached the 2006 and 2007 sales contracts and promissory notes to its complaint.
¶4 The Groomes filed a CR 12(b)(6) motion to dismiss AOA’s claim, arguing that the four-year statute of limitations under WUCC article 2 for the sale of goods had expired. AOA argued that its action was on the promissory notes which were negotiable instruments and, therefore, the six-year statute of limitations for negotiable instruments under WUCC article 3 applied.
¶6 AOA then unsuccessfully moved for reconsideration. Later, the trial court granted the Groomes attorney fees as the prevailing party pursuant to the sales contracts and promissory notes.
¶7 AOA appeals the trial court action dismissing AOA’s complaint on a CR 12(b)(6) motion, as well as its denial of AOA’s reconsideration motion. AOA also appeals the trial court’s attorney fees award to the Groomes.
ANALYSIS
I. Statute of Limitations
¶8 AOA first argues that the trial court improperly applied the four-year statute of limitations for claims arising from the sale of goods set forth in RCW 62A.2-725, rather than the six-year statute of limitations for claims arising from negotiable instruments set forth in RCW 62A-.3-118. We agree and reverse the trial court. Because the promissory notes used to secure payment on the sales contracts were not subject to or governed by the sales contracts, they remain negotiable instruments governed by WUCC article 3 and subject to a six-year statute of limitations.
¶9 We review de novo a trial court’s order dismissing a claim under CR 12(b)(6). Kinney v. Cook, 159 Wn.2d 837, 842, 154 P.3d 206 (2007). We review the denial of a motion for reconsideration for an abuse of discretion. Brinnon Grp. v. Jefferson County, 159 Wn. App. 446, 485, 245 P.3d 789 (2011).
¶10 WUCC article 2 governs the sale of goods. RCW 62A.2-102. Under WUCC article 2, the price of goods may be payable in money or otherwise. RCW 62A.2-304. If a promissory note is taken for an obligation, such as an obligation to pay for goods sold, the obligation is suspended and subsequently discharged to the extent the note is paid. RCW 62A.3-310(b). When the noteholder is also the obligee, the obligee may enforce either the note or the obligation. RCW 62A.3-310(b)(3). A plaintiff must commence an action for breach of a sales contract within four years after the cause of action accrued. RCW 62A.2-725(1).
¶11 WUCC article 3 governs negotiable instruments, which can include promissory notes. RCW 62A.3-102, -104. Under WUCC article 3, an action to enforce a party’s obligation to pay a note payable at a definite time that qualifies as a negotiable instrument must be commenced within six years after the due date stated on the instrument. RCW 62A.3-118(a).
A. The Promissory Notes are Negotiable Instruments
¶12 The dispositive question is whether the promissory notes here are negotiable instruments, such that they are subject to WUCC article 3’s six-year statute of limitations. A negotiable instrument contains an “unconditional promise or order to pay a fixed amount of money.” RCW 62A.3-104(a). Under RCW 62A.3-106(a), a promise or order
¶13 The Groomes argue that the two promissory notes are not negotiable instruments for three reasons. First, both notes state that the indebtedness evidenced by the notes is “pursuant to” the corresponding sales contract. However, RCW 62A.3-106(a) provides that “[a] reference to another writing does not of itself make the promise or order conditional.”
¶14 Second, both notes contain security agreements that all the alpacas the Groomes purchased under the sales contracts are the security. As a result, the sales
¶15 Third, the 2007 promissory note states, “Any notice given under this Note and the attached Security Terms and Conditions shall be given in accordance with the Sales Contract between the parties at the addresses set forth below.”
¶16 Both the 2006 and 2007 promissory notes are unconditional promises to pay. Neither includes any express conditions on the Groomes’ promise to pay. Also, neither provides that the promise to pay is subject to or governed by another writing. Finally, neither note contains language that the rights or obligations with respect to the promise to pay are stated in another writing. Therefore, both promissory notes constituted unconditional promises to pay and are negotiable instruments under WUCC article 3. See RCW 62A.3-106(a).
¶17 AOA argues that because the notes are separate and distinct from the underlying sales contracts, AOA could have sued on either the underlying sales contract under WUCC article 2 or on the promissory note under WUCC article 3. AOA claims that because it sued only on the notes, the six-year statute of limitations applies. We agree.
¶18 Because this is a matter of first impression in Washington, we look for guidance in out-of-state cases. In O’Neill v. Steppat, 270 N.W.2d 375 (S.D. 1978), for example, the trial court concluded that South Dakota UCC article 2’s four-year statute of limitations applied to an action to collect on a promissory note given in part payment of a sales contract. The South Dakota Supreme Court reversed, holding that the sellers sought to recover on the promissory note, not the sales contract, and “[t]hat the note might have been given in payment for a contract for sale is not relevant in this action.” O’Neill, 270 N.W.2d at 376. The court noted that in signing a negotiable note, the buyers made a separate promise under which arises a separate remedy on the note under South Dakota UCC article 3, distinct from the sales contract. O’Neill, 270 N.W.2d at 376. The court explained that “the holder of a note taken for an underlying contract has a choice of remedies. He can sue on the note or the underlying contract.” O’Neill, 270 N.W.2d at 376. The court held that the sellers chose to sue on the note under South Dakota UCC article 3, and the South Dakota UCC article 2 statute of limitations did not impair the remedy on the note. O’Neill, 270 N.W.2d at 376, 377.
¶19 In O’Neill, the court held that the promissory note, an unconditional promise not dependent on the underlying sales contract, gave rise to a “separate promise” distinct from the sales contract, so the seller could bring its claim under either the note or sales contract. O’Neill, 270 N.W.2d
III. Attorney Fees
¶20 The trial court awarded attorney fees to the Groomes under the sales contracts. The sales contracts provide that the prevailing party in an action concerning the contracts is entitled to attorney fees. Because we have reversed the trial court’s dismissal in favor of the Groomes, they are no longer the prevailing party and therefore are not entitled to attorney fees.
¶21 We reverse the trial court’s CR 12(b)(6) dismissal and denial of AOA’s motion for reconsideration. Accordingly, we also reverse its award of attorney fees to the Groomes.
RCWA 62A.3-106 cmt. 1 states, “The rationale is that the holder of a negotiable instrument should not be required to examine another document to determine rights with respect to payment.” And an instrument can retain its negotiability when it merely refers to the existence of another writing and does not require reference to the other writing as to whether or when payment is due. 6B Lary Lawrence, Anderson on the Uniform Commercial Code § 3-106:14R (3d ed. 2003).
“Pursuant to” simply means that one thing is “in conformance to or in agreement with” another. Webster’s Third New International Dictionary 1848 (2002). But when something is “governed” by something else, the governing device “controlls] the workings or operation” of that being governed. Webster’s, supra, 982. And similarly, when something is “subject” to something else, the subjected element is “likely to be conditioned, affected, or modified in some indicated way” by the subjecting device. Webster’s, supra, 2275.
A negotiable instrument may contain a security agreement without necessarily destroying negotiability. See RCW 62A.3-104(a)(3) (“the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment”).
The 2006 note does not contain a similar provision.
The Groomes also cite out-of-state cases to support their argument. These cases are distinguishable because they involved transactions in which the underlying sales contracts and promissory notes issued as payment on the contracts could not be divorced from one another or they involved statutory schemes significantly different from ours. See Troy Boiler Works, Inc. v. Sterile Techs., Inc., 3 Misc. 3d 1006, 777 N.Y.S.2d 574 (2003); Jackson v. Luellen Farms, Inc., 877 N.E.2d 848 (Ind. Ct. App. 2007); Fallimento C.Op.M.A. v. Fischer Crane Co., 995 F.2d 789 (7th Cir. 1993). Accordingly, the Groomes’ cases are not persuasive.
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