Wamco, III, Ltd. v. First Piedmont Mortg.
| Decision Date | 27 June 1994 |
| Docket Number | Civ. A. No. 2:93cv1003. |
| Citation | 856 F. Supp. 1076 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | WAMCO, III, LTD., Plaintiff, v. FIRST PIEDMONT MORTGAGE CORP., et al., Defendants. |
COPYRIGHT MATERIAL OMITTED
Robert Temple Mayo, Williams, Mullen, Christian & Dobbins, Richmond, VA, for plaintiff.
Frank James Santoro, William Carl Northington, Marcus, Santoro & Kozak, Portsmouth, VA, for defendants.
WAMCO, III, Ltd. instituted this action against First Piedmont Mortgage Corp., Dale S. White and William M. Bethea as makers of a note in the face amount of $500,000 (the "Note") and against White and Bethea as guarantors of the Note. WAMCO alleges that the Note is in default and that the amount due, including interest and late charges, is $632,269.63. The defendants have moved for dismissal under Fed.R.Civ.P. 12(b)(6) on the ground that the claim is barred by Virginia's five year statute of limitations on written contracts. Va.Code Ann. § 8.01-246.
On October 7, 1987, First Piedmont, White and Bethea executed the Note which was payable to Investors Savings Bank ("Investors") in the principal amount of $500,000. On the same date, White and Bethea executed a Guaranty of Note (the "Guaranty"), jointly and severally guaranteeing payment of all amounts due under the Note. The Note and the Guaranty were attached to, and made part of, the Complaint.
The Note is a form entitled "Investor's Loan Note," one section of which is captioned "REPAYMENT" which, in turn, is divided into three subheadings which are captioned: "DEMAND," "TIME," and "MULTIPLE PAYMENT," respectively. The box adjacent to the section entitled "DEMAND" bears the typed notation, "XX." The "DEMAND" section of the Note reads as follows:1
II. REPAYMENT (Payments below are subject to change if the
interest rate stated above is variable.)
• DEMAND • The principal amount of this loan is payable on demand with
interest from the date hereof payable
• monthly quarterly at maturity
other ________
beginning Nov. 7, 1987. Principal is due and payable on 10-7
1988 if not demanded prior to
Principal is payable on demand, however the following repayment
schedule will apply: _________________________________________
______________________________________________________________
______________________________________________________________
The boxes adjacent to the "TIME" or "MULTIPLE PAYMENT" subheadings are empty.
On December 13, 1991, the Resolution Trust Corporation ("RTC") was appointed receiver for Investors and assumed control of Investor's assets, including the Note and the Guaranty. By then the Note was long since in default and no demand had been made by Investors. The Complaint alleges that: "on or about June 30, 1992, the RTC sold certain of Investors' assets, including the Note and the Guaranty to WAMCO." There is attached to the Note an allonge by which RTC, "in its capacity as receiver for Investors," transferred the Note pursuant to the following endorsement: "Pay to the order of WAMCO, III, Ltd., a Texas limited partnership, without recourse and without representation or warranty, express or implied."
On October 7, 1993, WAMCO filed this action "as assignee of RTC" praying for judgment in the face amount of the Note with interest, late charges and attorney fees. The defendants moved to dismiss the complaint on the theory that the Note is a demand instrument on which the statute of limitations expired on October 7, 1992, five years after the Note was executed.
WAMCO takes the position that the Note is an instrument payable at a definite time and that the cause of action on it accrued on October 7, 1988, when payment had not been made by that date. Therefore, according to WAMCO, the action was timely filed under Virginia's five-year statute of limitations. Alternatively, WAMCO argues that, as assignee of RTC, it succeeded to the six-year statute of limitations provided in 12 U.S.C. § 1821(d)(14)(A) of the Federal Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and that the action is timely even if the Note is a demand instrument.
In determining a motion under Fed. R.Civ.P. 12(b)(6), the court is required to presume that all factual allegations in the Complaint are true and to accord all reasonable inferences to the non-moving party. 2A Moore's Federal Practice ¶ 12.072.5 (2d ed. 1994). The allegations of the Complaint are to be liberally construed and the motion should be granted only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).
The bar of a statute of limitations may be interposed by a motion to dismiss "when the time alleged in the complaint shows that the action was not brought within the statutory period." 2A Moore's Federal Practice ¶ 12.10 (2d ed. 1994); see Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462 (4th Cir.1991). All relevant dates appear in the Complaint or in the incorporated Note and Guaranty. Hence, the issue of timeliness may be decided as a matter of law if the characterization of the Note is also amenable to disposition as a matter of law.
Negotiable instruments are governed by the Uniform Commercial Code ("UCC"). Va.Code Ann. §§ 8.3-101 et seq. To be negotiable under the UCC, an instrument "must be payable on demand or at a definite time." Va.Code Ann. § 8.3-104(1)(c) (emphasis added);2 Hawkland & Lawrence, UCC Series, §§ 3-104:12, 3-108:01 (Art. 3). "A negotiable instrument is payable on demand when it: (1) is expressly stated to be payable on demand; (2) is payable on sight; (3) is payable on presentation; or (4) states no time for payment." Anderson, Uniform Commercial Code, § 3-108:4 (3d ed. 1984); Va.Code Ann. § 8.3-108. Under the UCC, "the distinguishing characteristic of an instrument payable on demand is that the time payment is due at the sole discretion of the holder." Hawkland & Lawrence, UCC Series, § 3-108:01 (Art. 3).
Instruments payable at a definite time are governed by Va.Code Ann. § 8.3-109 which provides that:
On its face, the Note is characterized as a demand instrument by virtue of the selection of the repayment option captioned "DEMAND." This characterization is underscored by the textual descriptions of the two repayment options that were not selected. The substantive text of the option captioned "TIME" provides for one payment in full due on a specific date. The substantive text of the option captioned "MULTIPLE PAYMENT" provides for installment payments to be made according to a specific schedule.
The text of the first sentence in the "DEMAND" section provides that "the principal amount is payable on demand" with interest payable monthly beginning on November 7, 1987. This amplifies the characterization of the Note which is indicated by the notation "XX" that appears in the box opposite the section heading entitled "DEMAND."
WAMCO bases its argument that the instrument is payable at a definite time on the second sentence of the "DEMAND" section which states: "principal is due and payable on 10-7 1988 if not demanded prior thereto." According to WAMCO, this sentence means that the Note is "simply, a fixed obligation of the maker with a defined maturity date combined with the right of the creditor to accelerate the note, if desired, before that maturity date." Plaintiff's Supplemental Brief, p. 7.
This argument, however, ignores: (i) the text of the first sentence in the "DEMAND" section, which expressly provides that principal is payable on demand; (ii) the significance of the selection from among three possible payment options the only one which provided for repayment on demand; and (iii) the headings and the text of the other two options each of which provided for repayment at a definite time but were not selected to describe the intent of the parties. Under familiar rules of construction, the sentence on which WAMCO relies must be read in context of the captions and the text of the unselected alternatives. The net result of that review shows that the parties eschewed the repayment options which would have made the Note payable at a definite time and selected, instead, the "DEMAND" repayment option. Therefore, the form of the instrument shows that it is payable on demand, not at a definite time. See Pavco Industries, Inc. v. First Nat'l Bank, 534 So.2d 572, 576-77 (Ala.1988). When those factors are considered in perspective of the caption of the selected repayment option ("DEMAND") and the plain language of the first sentence of that option ("principal is payable on demand"), the Note, as a whole, reflects the intent of the parties to create an instrument repayable on demand, rather than at a definite time. Hence, under Virginia law, the statute of limitations began to run on October 7, 1987, the date of execution. Va.Code Ann. § 8.3-122; Guth v. Hamlet Assoc., 230 Va. 64, 334 S.E.2d 558 (1985).
WAMCO seeks to avoid this result by arguing that the general rule activating the statute of limitations on a demand instrument does not apply "when the terms of the instrument disclose an intention by the parties that the note would not become due and payable immediately after the...
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