Knutkowski v. Cross

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: October 6, 2014
Date Decided: October 13, 2014
Kashif I. Chowdhry, Esquire Michael Rushe, Esquire
Parkowski, Guerke & Swayze, P.A. Hudson, Jones, Jaywork & Fisher, LLC
116 West Water Street 225 South State Street
Dover, DE 19903 Dover, DE 19901
Re: Knutkowski v. Cross
Civil Action No. 4889-VCG
Dear Counsel:
This matter was before me on cross-motions for partial summary judgment.
On October 6, 2014, I heard oral argument and disposed of the majority of the
issues presented from the Bench. Remaining is the Defendant’s Motion for Partial
Summary Judgment regarding the effect of a promissory note, made on September
12, 1997 and effective October 1, 1997, obligating the Defendant to repay $85,000
in monthly installments to George D. Knutkowski (the “Note”). The Note is a
simple and unsophisticated contract requiring repayment of a loan that was made
by Knutkowski to his then-girlfriend, later wife and now widow, the Defendant,
Nonnie Cross. It was presumably drafted by the parties themselves. Mr.
Knutkowski is now deceased. The Note indicates that upon Mr. Knutkowski’s
death, his rights under the Note did not pass to his estate; instead, his right to
recovery passed to his son, George D. Knutkowski, II, one of the Plaintiffs here.
The Note called for repayment to be made in monthly installments of $900
over a ten-year period, with the first payment due January 1, 1998. I assume for
purposes of this Motion for Partial Summary Judgment only that no payments were
ever made on the Note, such that all payments are at issue. The Note did not
provide for acceleration of the entire amount due should the debtor default on one
or more payment obligations.
This action was brought by the individual Plaintiff on September 11, 2009.
The parties agree that a six-year statute of limitations applies under 6 Del. C. § 3-
118(a).1 The single issue presented is this: Where a note calls for repayment of a
loan in installments on discrete dates, but fails to provide for a right to accelerate
when payments are in default, and where suit is filed to recover the amount due
under the note at a time when the limitations period has run with respect to some of
the installment payment obligations but not others, what portion, if any, of
recovery under the note is permitted, or excluded, by operation of the statute of
limitations?
1
That provision provides that “an action to enforce the obligation of a party to pay a note
payable at a definite time must be commenced within six years after the due date or dates stated
in the note or, if a due date is accelerated, within six years after the accelerated due date.” 6 Del.
C. § 3-118(a).
2
For the following reasons, I find that only those payments due to have been
made within the statutory period may be recovered. In the present case, this means
that only those payments due after September 11, 2003, the date six years
preceding the filing of this action, may be recovered upon a finding of liability.
A. Analysis
The Defendant’s motion raises the statute of limitations and laches as
grounds for summary judgment on the Note. While the “limitations of actions
applicable in a court of law are not controlling in equity,”2 this Court “will apply
the terms of the statute in bar of a purely legal right which happens to be drawn
into its cognizance where, had the action been at law, it would have been barred
there.”3 Even in equitable actions, this Court “accords great weight to the
analogous statute of limitations. In the absence of unusual or extraordinary
circumstances, the analogous statute of limitations creates a presumptive time
period during which the claim must be filed or else be barred as stale or
untimely.”4
2
Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009).
3
Haas v. Sinaloa Exploration & Dev. Co., 152 A. 216, 217–18 (Del. Ch. 1930); see also Bokat
v. Getty Oil Co., 262 A.2d 246, 251 (Del. 1970) (“When the relief sought in Chancery is legal in
nature, it is clear that Chancery will apply the statute of limitations rather than the equitable
doctrine of laches.”) disapproved of on other grounds by Tooley v. Donaldson, Lufkin &
Jenrette, Inc., 845 A.2d 1031 (Del. 2004).
4
Envo, Inc. v. Walters, 2009 WL 5173807 (Del. Ch. Dec. 30, 2009) aff'd, 2013 WL 1283533(Del. Mar. 28, 2013) (footnotes omitted); see also Whittington v. Dragon Grp., L.L.C., 991 A.2d
1, 9 (Del. 2009) (“Where the plaintiff seeks equitable relief, however, the Court of Chancery
applies the statute of limitations by analogy.”).
3
The Defendant argues that the Plaintiff’s suit was dilatory, that she will
suffer prejudice as a result, and that as a matter of equity the Plaintiff’s action on
the Note should be barred by laches. As noted at oral argument, I am reserving
any decision on the applicability of laches on the Plaintiff’s various claims, some
of them equitable in nature, until after trial. However, in considering the legal
question of whether the statute of limitations bars recovery on the Note, I find that
approximately half of the payments sought under the Note are barred by operation
of Section 3-118(a).
My analysis begins with the statute itself, which provides that “an action to
enforce the obligation of a party to pay a note payable at a definite time must be
commenced within six years after the due date or dates stated in the note or, if a
due date is accelerated, within six years after the accelerated due date.”5 Applied
here, the statute bars action on payment obligations due before September 11,
2003. In arguing that he can recover the entire face value on the Note, the Plaintiff
points to case law distinguishing continuous and severable obligations, suggesting
that, because Delaware treats severability as a matter of the parties’ intent, this is at
least a factual issue requiring trial.6 The cases on which the Plaintiff relies,
however, involve contracts of a nature distinguishable from the installment
5
6 Del. C. § 3-118(a) (emphasis added).
6
See Pl’s Answering Br. in Opp. to Def.’s Mot. for Partial Summ. J. at 10.
4
payment provisions of the promissory note at issue in the present case.7 Those
cases involved agreements on which the accrual date of a breach could not be
readily determined8 or where damages were not ascertainable as of some
intermediate date.9
7
See SPX Corp. v. Garda USA, Inc., 2012 WL 6841398 at *2–3 (Del. Super. Dec. 6, 2012)
(involving an obligation to reimburse the plaintiff for its expenses in administering employee
benefit and compensation plans on an ongoing basis, as well as an obligation to replace the
plaintiff’s letters of credit); Bridgestone/Firestone, Inc. v. Cap Gemini Am., Inc., 2002 WL
1042089 (Del. Super. May 23, 2002) (involving four contracts governing a consulting
relationship relating to selection of enterprise resource planning software between
Bridgestone/Firestone and Gemini); Chaplake Holdings, Ltd. v. Chrysler Corp., 1999 WL
167834 at *21 (Del. Super. Jan. 13, 1999) (involving an implied contract between Chrysler and
Lamborghini that the latter would “introduce two new models, expand its production capabilities
and that [another entity] would correspondingly expand to handle a significant increase in sales
of cars by obtaining a centralized distribution center, expand its sales facilities to handle the
increasing number of cars and that all of this would be over five-to-six years”); Matter of Burger,
125 B.R. 894, 898 (Bankr. D. Del. 1991) (involving a contract for, in part, the purchase of a herd
of cattle for $150,000, under which the seller was to “manage, maintain, and expand the herd as
well as to improve its quality” while the buyer “paid all feed and upkeep expenses [and the
seller] would pay over all milk revenues and any sale proceeds from bulls or cull cows”); Scott
Fetzer Co. v. Douglas Components Corp., 1994 WL 148282 (Del. Ch. Apr. 12, 1994) (involving,
as relevant to this analysis, a contract for the assumption of CERCLA liability for six sites);
Guerrieri v. Cajun Cove Condo. Council, 2007 WL 1520039 at *4–6 (Del. Super. Apr. 25, 2007)
(involving “an ongoing, continuous duty to maintain, repair and replace [a] damaged pipe” under
a condominium creation document).
8
See, e.g., SPX Corp., 2012 WL 6841398, at *3 (“There is at least an arguable position that [an]
obligation [to reimburse employee benefit payments] had not matured until [the] individual
[ongoing] compensation payments had been completed [by the party seeking reimbursement],”
thus necessitating factual development on the issue); Bridgestone/Firestone, 2002 WL 1042089at *7 (finding a question of fact as to whether a series of four agreements constituted a
continuing obligation). Although the Plaintiff also cites Scott Fetzer Co., 1994 WL 148282, this
Court did not reach the issue of whether the contract created a continuing obligation in reaching
its decision in that case. See id. at *5.
9
See, e.g., Matter of Burger, 125 B.R. at 902; Chaplake Holdings, 1999 WL 167834, at *22
(“[O]nly near the end [of the parties’ relationship] was it possible to better ascertain the
damages.”).
5
The case at hand does not present the same kind of factual issue.10 Because
the dates on which the Defendant’s obligations were due were defined precisely in
the Note, as were the amounts to be repaid, under the clear language of Section 3-
118(a), the limitations period began to run upon each discrete breach, on the date
due. The same rationale precludes the Defendant’s argument that the failure to file
an action for the first breach of an installment obligation under the Note within six
years bars any recovery under the Note.
I find our Supreme Court’s holding in Worrel v. Farmers Bank of State of
Delaware11 helpful here. In that case, an installment sales contract provided that
the Bank may elect to accelerate unpaid remaining obligations, though acceleration
was not automatic upon a missed payment. The Court held that the statute of
limitations (in that case, a four-year period under 6 Del. C. § 2-725) did not begin
to run against the entirety of the amount to be repaid until the obligor had missed
an installment payment and the Bank declared the remainder immediately due and
payable under the acceleration clause.12 Importantly with respect to the issue
before me, the Court noted that its conclusion was consistent with pre-Uniform
10
See Guerrieri, 2007 WL 1520039 at *6 (“Although in some cases, whether a contract is
continuous may be a question of fact, there are situations, such as here, where no factual issue
exists.”).
11
430 A.2d 469 (Del. 1981).
12
Id. at 474.
6
Commercial Code law on statutes of limitations in installment payment contracts,
which the Court explained provided that
the statute of limitations began to run with respect to each installment
only from the time it became due, unless the seller had the option of
declaring the whole sum due and exercised that option, in which case
the statute began to run from the date of the exercise of that option.13
This is consistent with the clear language of Section 3-118(a), which now governs
actions to enforce obligations to pay on a note.14
Accordingly, I find that the statute of limitations will act as a bar to any
missed installment payments that occurred more than six years preceding the date
this action was instituted, but not those due thereafter. Stated differently, only
those installment payments due after September 11, 2003, the date six years prior
to the filing of this lawsuit, can be recovered if I ultimately find, post-trial, that the
Defendant has not carried her burden of proof as to payment.
B. Conclusion
13
Id. at 475–76 (emphasis added); see also Walpole v. Walls, 2003 WL 22931330 at *2 (Del.
CCP July 8, 2003).
14
See also Desimone v. Barrows, 924 A.2d 908, 924 n.39 (Del. Ch. 2007) (“Rather, the well-
accepted rule in the statute of limitations context is that the statute of limitations for each discrete
wrongful transaction begins to run upon the occurrence of each transaction, and a plaintiff can
only challenge those transactions, or other wrongful acts, that occurred within the limitations
period.”); Price v. Wilmington Trust Co., 1995 WL 317017 at *2 (Del. Ch. May 19, 1995)
(involving “numerous repeated wrongs of similar, if not same, character over an extended
period” and finding that each incident “[gave] rise to separate cause of action”); Bean v. Fursa
Capital Partners, LP, 2013 WL 755792 at *5 (Del. Ch. Feb. 28, 2013) (finding that “repeated
failures to prepare and deliver audited annual financial statements for 2008 through 2011 are
each separate wrongful transactions”).
7
For the foregoing reasons, Defendant’s Motion for Partial Summary
Judgment is granted in part, insofar as the statute of limitations bars recovery on
installments due prior to September 11, 2003. Regarding any payments due after
September 11, 2003, the Defendant’s Motion, to the extent it rests on the statute of
limitations, is denied. To the extent the foregoing requires an Order to take effect,
IT IS SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
8