Marine Midland Bank, N.A. v. United Missouri Bank, N.A.

• Decision Date: 28 May 1996
• Citation: 643 N.Y.S.2d 528,223 A.D.2d 119
• Parties: MARINE MIDLAND BANK, N.A., as Agent for Canadian Imperial Bank and Others, Plaintiff-Appellant, v. UNITED MISSOURI BANK, N.A., as Executor of James D.H. Reynolds, Deceased, Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 528

643 N.Y.S.2d 528

223 A.D.2d 119

MARINE MIDLAND BANK, N.A., as Agent for Canadian Imperial

Bank and Others, Plaintiff-Appellant, v. UNITED MISSOURI BANK, N.A., as Executor of James D.H.

Reynolds, Deceased, Defendant-Respondent.

Supreme Court, Appellate Division,

First Department.

May 28, 1996.

Bruce R. Ewing, of counsel (Jonathan M. Herman on the brief; Townley & Updike attorneys), New York City, for plaintiff-appellant.

R. Scott Garley, of counsel (Felice L. Berkman on the brief; Grais & Phillips, attorneys, New York City, for defendant-respondent.

Before SULLIVAN, J.P., and ELLERIN, ROSS, NARDELLI and TOM, JJ.

ELLERIN, Justice.

The issue before us is whether New York or Kansas law applies in this action against a deceased Kansas debtor's estate seeking recovery on a debt which accrued in New York under an agreement providing that New York law would govern in any action for its enforcement.

The underlying facts are essentially undisputed. On August 31, 1986, the decedent, James D.H. Reynolds, M.D., a Kansas resident, executed a negotiable promissory note together with a subscription agreement and security agreement for the purchase of an interest in a Connecticut limited partnership. The partnership was formed to acquire a Brentwood, Tennessee shopping center and was sponsored by Integrated Resources, Inc. ["Integrated"], a corporation having its headquarters in New York. Decedent made a modest down payment at the time he purchased his interest and was thereafter required by the note to make quarterly installment payments over a six year period to the partnership at Integrated's headquarters in New York.

The promissory note included terms accelerating the payment of principal and accrued interest upon a default in the payment schedule, requiring post-default interest at the rate of 2% per month, binding decedent's legal representatives, heirs, successors and assigns, and providing that New York law would govern any action brought to enforce its provisions. In addition, the security agreement contained clauses in which decedent consented to the exercise of in personam jurisdiction in New York, waived all defenses, including any challenges to jurisdiction or venue, and agreed that service of process by certified mail was valid unless the partnership was notified otherwise in writing.

On January 31, 1987, the date the first payment was due, decedent and his wife were killed in an airplane accident, and, pursuant to the terms of his will, defendant United Missouri Bank, N.A. ["UMB"], was appointed executor of his estate. On February 26, 1987, UMB wrote to Integrated, advised it of decedent's death, and asked that the partnership postpone any action on the payments for 30 days. After probate proceedings were commenced in the Kansas courts, UMB, as required under the Kansas Probate Code, published a form "Notice to Creditors" in a Kansas semi-weekly newspaper informing creditors of the estate that they must "exhibit their demands" by filing a claim with the Kansas probate court within four months from the date the Notice first appeared (i.e., by July 6, 1987) or their claims would be barred under the Kansas non-claim statute (KSA § 59-2239[1]. The statute provided as follows:

All demands, including demands of the state, against a decedent's estate, whether due or to become due, whether absolute or contingent, including any demand arising from or out of any statutory liability of decedent or on account of or arising from any liability as surety, guarantor or indemnitor, and including the individual demands of executors and administrators, not exhibited as required by this act within four months after the date of the first published notice to creditors as herein provided, shall be forever barred from payment, except that the provisions of the testator's will requiring the payment of a demand exhibited later shall control. ¹

On April 6, 1987, UMB again contacted the partnership and asked it to hold off any action on payments due, but did not mention the necessity of filing a claim in the Kansas probate court. On May 28, 1987, UMB sent the overdue first payment along with late charge to Integrated's offices in New York and, for four years thereafter, tendered every payment due under the note. However, in July 1991, UMB defaulted on the nineteenth scheduled payment and has defaulted on all subsequent payments.

Meanwhile, in October 1987, the partnership assigned and granted a security interest in the note and the security agreement to a third party, who, in turn, assigned the instruments to plaintiff Marine Midland Bank ["Marine"], located in New York, which instituted the instant action to recover on the note and security agreement. When Marine moved for summary judgment, defendant cross-moved for dismissal of the complaint on the ground that the claim was governed by the Kansas probate statute and was jurisdictionally barred under the terms of that statute. It is plaintiff's appeal from the motion court's dismissal of the complaint on that basis that is before us.

Defendant executor argues that, under the version of the Kansas non-claim statute which was then in effect, plaintiff is barred from recovering against the estate because of its failure to timely exhibit its claim. Plaintiff, on the other hand, argues that this statute has no effect, as the parties specifically agreed that the transaction was to be governed by New York, rather than Kansas, law.

At the outset it should be noted that, since statutes of limitation have traditionally been characterized as procedural, not substantive, and "under common-law rules matters of procedure are governed by the law of the forum" (Martin v. Julius Dierck Equipment Co., 43 N.Y.2d 583, 588, 403 N.Y.S.2d 185, 374 N.E.2d 97), a purely procedural statute of limitations of another state is ordinarily no bar to a proceeding in New York (id.).

While defendant does not dispute that the instant action accrued in New York and was timely brought under New York law, it contends, and the motion court agreed, that the Kansas statute governing claims against a decedent's estate, which is not subject to any tolling provisions and which bars all claims that have not been "exhibited" within four months, regardless of their nature or whether they have accrued, is a substantive rule of law, rather than a purely procedural statute of limitations and, therefore, is here controlling, strongly relying on Bachorik v. Allied Control Co., 56 Misc.2d 982, 983, 290 N.Y.S.2d 70, aff'd 31 A.D.2d 891, 299 N.Y.S.2d 100, and citing Southeast Bank, N.A. v. Lawrence, 66 N.Y.2d 910, 912, 498 N.Y.S.2d 775, 489 N.E.2d 744. Significantly, neither of the cases relied upon by the motion court involved a contractual choice of law provision as is here the case. As a general rule, choice of law provisions such as those contained in all of the documents involved in this transaction, including the promissory note of which enforcement is sought, are valid and enforceable in this State (Wyatt v. Fulrath, 16 N.Y.2d 169, 264 N.Y.S.2d 233, 211 N.E.2d 637; Swift & Co. v. Bankers Trust Co., 280 N.Y. 135, 140, 19 N.E.2d 992; Bossier Plaza Assoc. Ltd. Partnership v. Pierson, 156 A.D.2d 246, 548 N.Y.S.2d 507). Moreover, the UCC specifically provides that, as long as a transaction bears a reasonable relation to this State, the parties may agree that New York law shall govern their rights and duties (UCC § 1-105). Here, there is no serious dispute that the transaction bears a reasonable relationship to New York; the original sponsor of the limited partnership had its headquarters in New York, all payments due on the note were to be made to the partnership at that...