Promissory Notes and Statutes of Limitations in Texas

Recently, the Dallas Court of Appeals in Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218 (Tex. App.-Dallas 2015) (unpublished opinion) reminded practitioners of the importance of determining whether you are suing on a negotiable instrument or a nonnegotiable instrument when determining the statute of limitations.

In Alta Logistics, the lender, Bank of America, sued Alta Logistics and its guarantor on a promissory note (the “Note”) dated July 7, 2004 in the original amount of $125,000. The Note stated it was a revolving line of credit and provided that Alta Logistics would make all payments of principal and interest.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *1. The guaranty stated that it was unlimited and the obligations of the guarantor were continuing. The Note was renewed three times and the final principal and interest payments were due on October 5, 2007.  The Note was not renewed again and was not paid by October 5, 2007. On January 14, 2013, Bank of America filed suit for breach of contract and other causes of action. Alta Logistics filed an amended answer that asserted the affirmative defense of limitations.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *2. Cross motions for summary judgment were filed by both parties with Alta Logistics alleging that the Note was barred because of the four-year statute of limitations to sue for a debt under Texas Civil Practice and Civil Code 16.004(a)(3). Bank of America alleged that the note and guaranty were negotiable instruments and not barred under the six-year statute of limitations for negotiable instruments at Texas Business and Commerce Code 3.118.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *5.  The trial court granted Alta Logistics summary judgment and held that Bank of America’s claim was barred under the 4-year statute of limitations.

In affirming the trial court’s judgment that Bank of America’s claim was barred under the statute of limitations because the Note was nonnegotiable, the court analyzed and set out how to determine if a note and guaranty are negotiable. The Dallas Court of Appeals held that a negotiable instrument is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order upon demand or at a definite time.’  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *5, citing, Tex. Bus. Com. Code Ann. 3.104(a); Ward v. Stanford, 443 S.W.3d 334 (Tex. App.-Dallas 2014, no pet.) (citing FFP Mktg. Co. v. Long Lane Master Trust IV, 169 S.W.3d 402, 407 (Tex. App.-Fort Worth 2005, no pet.)). The Dallas Court of Appeals also held that the sum certain requirement is designed to provide commercial certainty in the transfer of negotiable instruments and to make negotiable instruments the functional equivalent of money.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *5.

The Note before the court was nonnegotiable because the Note stated the amount of $125,000 is due “or so much as may be outstanding.” and the unpaid balance could not be determined without reference to Bank of America’s internal records, and the amount due on the Note at any given time was not readily determinable.  The Note also did not contain an unconditional promise to pay a sum certain; was not for a fixed amount (i.e. it was a revolving line that went up and down so long as the balance did not exceed $125,000); and the Note was not the functional equivalent of money.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *7, citing, Tex. Bus. & Com. Code Ann. 3.104(a); see also NAB Asset Venture III, LP v. John O’Brien & Assocs., No. 05-96-01453-CV, 1999 Tex App. LEXIS 1302, 1999 WL 88776 at *5 (Tex. App.-Dallas 1999, pet. denied) (not designated for publication).  Because the Note was nonnegotiable, the four-year statute of limitations applied and the claim on the Note (and the unlimited guaranty that did not have a fixed amount) was barred.  Bank of Am., N.A. v. Alta Logistics, Inc., 2015 Tex. App. LEXIS 1218, *7 -8.

Determining if your promissory note is negotiable or nonnegotiable is a key step on a suit for any note. Another good case that discuss this issue in the context of note secured by a deed of trust and real estate and the necessary to obtain certain jury findings is at Crego v. Lash, 2014 Tex. App. LEXIS 3272, 2014 WL 1272220 (Tex. App.-Corpus Christi 2014) (unpublished). The opinions of this blog are solely the author’s and any suggestions, comments or replies can be sent to me at john@jrjoneslaw.com. Happy Independence Day!

Advertisements