Sirius Lc v. Erickson

• Decision Date: 28 March 2007
• Docket Number: No. 32582.,32582.
• Citation: 156 P.3d 539,144 Idaho 38
• Parties: SIRIUS LC, a Wyoming Limited Liability Company, Plaintiff-Respondent, v. Bryce H. ERICKSON, and Any Person Claiming Under By or Through Bryce H. Erickson in and to the Real Property Described as Follows: Caribou County, Idaho: Township 5 South, Range 46 E.B.M., Section 27: Lots 1 and 2, N 1/2 NW 1/4, Except Therefrom the S 1/2 NE 1/4 NW 1/4 NW 1/4, Defendants-Appellants.
• Court: Idaho Supreme Court

156 P.3d 539

144 Idaho 38

SIRIUS LC, a Wyoming Limited Liability Company, Plaintiff-Respondent, v. Bryce H. ERICKSON, and Any Person Claiming Under By or Through Bryce H. Erickson in and to the Real Property Described as Follows: Caribou County, Idaho: Township 5 South, Range 46 E.B.M., Section 27: Lots 1 and 2, N 1/2 NW 1/4, Except Therefrom the S 1/2 NE 1/4 NW 1/4 NW 1/4, Defendants-Appellants.

No. 32582.

Supreme Court of Idaho, Boise, March 2007 Term.

March 28, 2007.

McGrath, Meacham & Smith, PLLC, Idaho Falls, for appellant. B.J. Driscoll argued.

A. Bruce Larson, Pocatello, for respondent.

JONES, Justice.

This case concerns the enforceability of a promissory note. Respondent, Sirius LC, sued to recover upon a promissory note signed by Appellant, Bryce Erickson, and to foreclose on a real estate mortgage securing the note. Erickson asserted thirteen affirmative defenses and subsequently moved for summary judgment on the ground that the note was unenforceable due to lack of consideration. The district court denied Erickson's motion and granted summary judgment in favor of Sirius, dismissing all of Erickson's affirmative defenses after finding that the note was supported by consideration. We affirm in part and vacate in part.

I.

Sirius is a Wyoming limited liability company co-owned by William Bagley and his wife. Bagley is an attorney whose services Erickson procured for two bankruptcy proceedings. Erickson first retained Bagley in 1998 to represent him in a Chapter 11 bankruptcy proceeding in Wyoming. In 1999, after the bankruptcy court had dismissed his Chapter 11 proceeding, Erickson again approached Bagley and requested his representation in a Chapter 12 proceeding. Bagley agreed to represent Erickson provided that Erickson sign a promissory note payable to Sirius in the amount of $29,173.38, to be secured by a mortgage on real property owned by Erickson in Caribou County, Idaho. Bagley asserts that the amount of the promissory note represented the overdue legal fees Erickson owed him for the Chapter 11 proceeding. On November 13, 1999, Erickson executed a promissory note payable to Sirius, which provided "[f]or value received, the undersigned Bryce H. Erickson promises to pay to SIRIUS LC . . . the sum of Twenty Nine Thousand One Hundred Seventy Three Dollars and Thirty Eight Cents ($29,173.38) bearing 10% interest due and payable on June 1, 2001." Erickson executed a real estate mortgage securing the promissory note that same day. Thereafter, at the behest of Erickson, Bagley filed a Chapter 12 proceeding in Wyoming.

This case commenced when Sirius filed a complaint to foreclose on Erickson's Caribou County property after he refused to pay the note once it became due. Erickson denied Sirius' right to relief, asserting thirteen affirmative defenses in his amended answer. Erickson moved for summary judgment on the ground that the promissory note was unenforceable due to lack of consideration flowing from Sirius. Erickson also moved to compel production of certain documents pertaining to his affirmative defenses, which he alleged Sirius refused to produce. Following a hearing on Erickson's motion for summary judgment, the district court, instead of ruling in Erickson's favor, granted summary judgment to Sirius and denied Erickson's motion to compel. The district court held there was no genuine issue of material fact as to whether the note was supported by consideration because it existed under both Article 3 of the Uniform Commercial Code and common law contract principles. Erickson appeals.

II.

We will address four issues in this opinion: (1) whether the district court erred in granting summary judgment to Sirius with respect to Erickson's lack of consideration defense; (2) whether the district court erred in granting summary judgment with respect to Erickson's remaining affirmative defenses; (3) whether the district court erred in denying Erickson's motion to compel; and (4) whether either party is entitled to an award of attorney fees or costs.

A.

This Court applies the same standard as the district court when reviewing a summary judgment order. Schneider v. Howe, 142 Idaho 767, 770, 133 P.3d 1232, 1235 (2006). Summary judgment is proper when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Idaho R. Civ. P. 56(c). Upon a party's request for summary judgment, a district court has the authority to render summary judgment in favor of any party, moving or non-moving, even if the non-moving party has not filed its own motion. Harwood v. Talbert, 136 Idaho 672, 677, 39 P.3d 612, 617 (2001). This Court will construe all disputed facts liberally in favor of the party against whom summary judgment was entered, and will grant that party the benefits of all reasonable inferences from the record. Id. at 677-78, 39 P.3d at 617-18. If the facts are such that reasonable persons could reach differing results, summary judgment is improper. Hayward v. Jack's Pharmacy Inc., 141 Idaho 622, 625, 115 P.3d 713, 716 (2005).

B.

As a preliminary matter, we must decide whether the promissory note in question is a negotiable instrument governed by Article 3 of the Uniform Commercial Code or a non-negotiable promissory note governed by common law contract principles. The district court held that the promissory note "clearly f[ell] within the definition of a negotiable instrument," and found that consideration for the note existed under Article 3. However, it additionally held that, even if the promissory note were not governed by Article 3, consideration for the note existed under common law contract principles. Because the promissory note in question here is not a negotiable instrument, common law contract principles govern the resolution of this issue.

i.

The district court's classification of the promissory note as a negotiable instrument and its application of Article 3 were improper. For a writing to constitute a negotiable instrument under Article 3 it must satisfy the requirements set forth in Idaho Code § 28-3-104. One of the prerequisites is that the promise or order must be "payable to bearer or to order at the time it is issued or first comes into possession of a holder." I.C. § 28-3-104(1)(a).¹ A promise or order is payable to bearer if it:

(a) States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment;

(b) Does not state a payee; or

(c) States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.

I.C. § 28-3-109(1)(a)-(c). A promise or order is payable to order "if it is payable (i) to the order of an identified person, or (ii) to an identified person or order." I.C. § 28-3-109(2).

The promissory note under consideration here lacks the requisite words of negotiability to be a negotiable instrument. It provides in relevant part "[f]or value received, the undersigned Bryce H. Erickson promises to pay to SIRIUS LC. . . ." The note is not payable to bearer because it specifically identifies the person to whom payment is to be made, "SIRIUS LC," and even though the note is payable to an identified person, it is not payable to order because it lacks the words of negotiability "to order" required under Idaho Code § 28-3-109(2). Notes payable simply to a specific payee, and not "to the order of the payee" or "to the payee or order," are non-negotiable. See, e.g., Universal Premium Acceptance Corp. v York Bank & Trust Co., 69 F.3d 695, 700 (3d Cir.1995) (draft with language "PAY AND DEPOSIT ONLY TO THE CREDIT OF: Great American Insurance Company" was non-negotiable because it lacked the words "to the order of"); Krajcir v. Egidi, 305 Ill.App.3d 613, 238 Ill.Dec. 813, 712 N.E.2d 917, 922 (1999) (note with language "payable to sellers," although payable to specific individuals, was non-negotiable because it did not contain the words "to order" or "to bearer"). The promissory note here is not "payable to bearer or to order" and thus is non-negotiable; consequently, the promissory note is governed by contract law.

ii.

As an alternative to its finding of consideration pursuant to Article 3, the district court found that the note was enforceable under common law contract principles. Specifically, the district court held that Sirius could enforce the note as a third party beneficiary to the note. Although ultimately correct in concluding that lack of consideration is not a defense in this instance, the district court arrived at that result through an improper application of contract law. The district court's characterization of Sirius as a third party beneficiary to the promissory note was erroneous.

Sirius, as the named promisee of the note it is attempting to enforce, is not a third party beneficiary to the note. Idaho has recognized that "[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." I.C. § 29-102. However, to obtain third party beneficiary status, a plaintiff must be a stranger to the contract he is attempting to enforce. Corbin, Corbin on Contracts vol. 9, § 779, 27-28 (1979) (providing: "It is possible . . . that a party may be the promisee and the one who will be benefited by performance and yet not the one who gave the consideration. Such a promisee is not a `third party' beneficiary"). Such is not the case here. Erickson, the promisor, directed his promise to pay to Sirius, making Sirius the named promisee of the note. As such, Sirius does not have an enforceable right against Erickson as a third party beneficiary but, rather, has an enforceable right as the promisee of the note so long as the note is otherwise enforceable. Thus, the district court's holding that Sirius...