Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. CGC-04-432829
Parrilli, Acting P. J.
INTRODUCTION
This appeal stems from a breach of contract action to recover on unpaid promissory notes and a finding of liability based on surety law. Defendants and appellants Chong Soo Kim and Myung Ai Kim (“appellants”) appeal the judgment awarded against them after a bench trial. The trial court found in favor of plaintiff and respondent CHB America Bank (“respondent”) and held appellants liable for two promissory notes they guaranteed on behalf of their business, Kim Pacific Trading Corporation (“Kim Pacific”). Appellants contend the trial court applied the wrong statute of limitations and respondent’s claim was time-barred. Appellants also contend the court should have excluded the testimony of a bank employee on hearsay grounds. They assert his testimony was insufficient to admit bank documents under the business records exception to the hearsay rule. We remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
Appellant Chong Soo Kim is the founder and president of Kim Pacific. He and his wife, appellant Myung Ai Kim, were the sole shareholders in the corporation. Kim Pacific specialized in importing martial arts equipment and computer hardware from South Korea. The company thrived in the 1980s, but its fortunes declined in the mid-1990s along with those of the computer hardware industry.
Since the 1970s, appellants and Kim Pacific had a banking relationship with Cho Hung Bank, San Francisco Agency (“Cho Hung”). At trial the parties accepted CHB America as the successor in interest to Cho Hung.
The Guaranty Agreements
Both appellants signed separate, notarized continuing guaranty agreements (“the Guaranties”) with Cho Hung, on behalf of Kim Pacific. Mrs. Kim signed her Guaranty agreement on December 15, 1987 and Mr. Kim signed an identical Guaranty on December 9, 1988. Section one of the Guaranties provides: “The Guarantor hereby unconditionally and irrevocably guarantees (as primary obligor and not merely as surety) the prompt payment . . . of any and all obligations and liabilities of the Borrower [Kim Pacific] to the Bank (. . . now existing or hereinafter arising . . . )[.]” Section three (“Waivers by Guarantor”) includes the following waivers: “The Guarantor waives . . . (f) any right to exoneration of sureties which would otherwise be applicable; and (g) any benefit of any statute of limitations affecting Guarantor’s liability[.]”
The Promissory
In June 1994, Kim Pacific executed two commercial promissory notes (“the Notes”) in favor of Cho Hung. As president, Chong Soo Kim signed both Notes. One was a single advance loan of $1,110,000. The other was a line of credit with a limit of $290,000. Both Notes were due and payable in full on June 24, 1995.
Default and Subsequent Lawsuit
Neither Note was paid on the specified date. On November 19, 2003, respondent filed a complaint against Kim Pacific and appellants in Los Angeles County Superior Court.
Relevant events in the case up to the time of the complaint can be summarized as follows:
Date
Event
12/15/87
Mrs.Kim signs Guaranty.
12/9/88
Mr.Kim Signs Guaranty.
6/21/94
PromissoryNote for $1,110,000 loan to Kim Pacific.
6/21/94
PromissoryNote for $290,000 line of credit to Kim Pacific.
6/24/95
BothNotes Due.
2/27/97
LastInterest Payment.
11/19/03
ComplaintFiled.
The complaint alleged breach of the Notes by Kim Pacific and appellants’ liability for the breach under the Guaranties. Respondents sought recovery of the balance on the Notes, interest, and attorneys’ fees. Kim Pacific did not respond to the complaint and the clerk of the court entered default judgment against the corporation on April 9, 2004. Kim Pacific sought no relief from their default. Appellants answered the complaint and the court granted their motion to transfer the action to San Francisco County. The Superior Court of San Francisco conducted a bench trial on October 18-20, 2005 and a post-trial hearing on December 16, 2005. On January 25, 2006, the trial court filed its Statement of Decision in favor of respondent in the amount of $1,734,561.28 ($1,076,486.46 for the principal on one Note; $281,908.01 for the principal on the second; and $376,166.81 in accrued interest plus attorneys’ fees). This appeal timely followed.
DISCUSSION
I
Appellants contend the trial court erred in applying the six-year statute of limitations for negotiable instruments under California Uniform Commercial Code section 3118 (“Section 3118”) rather than the four-year statute of limitations for other written obligations under California Code of Civil Procedure section 337 (“Section 337”). Appellants contend respondent’s action would have been time-barred if the trial court had applied the four-year statute.
“[A]n action to enforce the obligation of a party to pay a note payable at a definite time shall be commenced within six years after the due date or dates stated in the note[.]” (Cal. U. Com. Code, § 3118.)
“Within four years: 1. An action upon any contract, obligation or liability founded upon an instrument in writing[.]” (Code Civ. Proc., § 337.)
The trial court found the Kims liable under the Guaranties for Kim Pacific’s unpaid Notes. In its Statement of Decision the trial court noted: “the Kims each agreed to stand in the shoes of Kim Pacific and make good on their respective obligations as primary obligors.” Accordingly, the trial court concluded to apply a statute of limitations other than the one applicable to Kim Pacific “would render illusory” appellants’ promises under the Guaranties. In short, the trial court applied a six-year statute of limitations against appellants, not because the Guaranties were governed by Section 3118, but because of what it perceived to be appellants’ contractual obligations under the Guaranties. This was error.
We analyze the statute of limitations question de novo and are not bound by the trial court’s interpretation. (Board of Retirement v. Lewis (1990) 217 Cal.App.3d 956, 964 [“The construction of a statute and its application to a particular case are questions of law . . . subject to independent review on appeal.”].) We begin by noting appellants do not dispute the validity of the Guaranties or their provisions waiving the statute of limitations defense. Indeed, appellants acknowledge California law limits the time a party may waive the statute of limitations to a maximum of four years. (Code Civ. Proc., § 360.5.) Whatever the appropriate statute of limitations, then, the trial court correctly added an additional four years to the term. (California v. Braden (1989) 216 Cal.App.3d 672, 676 [“a written waiver executed prior to the running of the applicable statute of limitations shall be effective for a period of four years from the commencement of the running of the statute of limitations.”].)
Appellants correctly assert the Guaranties do not meet the definition of a “negotiable instrument” under California Uniform Commercial Code section 3104, subdivision (a) (i.e. they do not specify a fixed amount of money payable at a specific time). (See, e.g., Manufacturers and Traders Trust Co. v. International Packaging, Inc. (1994) 207 A.D.2d 982, 983 [guaranty agreements not negotiable instruments as defined by UCC 3-102(1)(e)].) Thus, appellants argue, their liability under the Guaranties is covered by the four-year statute of limitations for “written obligations” under Section 337. Section 337 establishes a four-year statute of limitations for “any contract, obligation or liability founded upon an instrument in writing.” Under appellant’s theory, the applicable eight year statute of limitations (four years from Section 337, plus four years from the waiver) would have expired on June 25, 2003 – almost five months before respondent filed its complaint.
On the other hand, if the trial court ruled correctly, then respondent filed its complaint within the applicable ten year statute of limitations (six years from Section 3118, plus four years from the waiver). Accordingly, the issue is whether the applicable statute of limitations for appellants’ obligations under the Guaranties is governed by Section 3118 (covering negotiable instruments) or by Section 337 (covering written obligations). Appellants raised this issue in their affirmative defense at trial and reassert it as the central basis for their appeal.
There is no question the Notes are negotiable instruments. As such, they represent Kim Pacific’s unconditional promise to pay two fixed amounts of money on a specific date. (Cal. U. Com. Code, § 3104, subd. (a) [“ ‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money[.]”].) Kim Pacific breached the Notes and became liable when they failed to repay respondent on June 24, 1995. The six year statute of limitations then began running against Kim Pacific, under Section 3118. However, Section 3118 does not operate to apply the same six-year statute against appellants as guarantors. “The only purpose of [Section 3118] is to define the time within which an action to enforce an obligation . . . arising under Article 3 must be commenced. [Section 3118] does not attempt to state all rules with respect to a statute of limitations. For example, the circumstances under which the running of a limitations period may be tolled is left to other law. . . .” (23A Pt. 2 West’s Ann. Cal. U. Com. Codes (2002 ed.) foll. § 3118, UCC com. 1, p. 235.) Of critical importance here is that appellants’ obligations do not arise under Article 3 because appellants were not parties to the Notes—the only party to the Notes was Kim Pacific Trading Corporation. Therefore, appellants are solely guarantors and are not “accommodation parties.” (23A Pt. 2 West’s Ann. Cal. U. Com. Codes (2002 ed.) foll. § 3419, com. 3, p. 491 [guarantor who is not a party to the instrument is not an “accommodation party” under the UCC]; see also the Restatement (Third) of Suretyship & Guaranty (1996 ed.) § 4, com. a [Article 3 of the UCC applies to surety relationships where both the principal and secondary obligors are parties to the negotiable instrument].) And the rights of a surety or guarantor who is not an accommodation party “are determined under the general law of suretyship,” not under the UCC. (23A Pt. 2 West’s Ann. Cal. U. Com. Codes (2002 ed.) foll. § 3419, UCC com. 3.) Accordingly, we must conclude appellant’s obligations under the written Guaranties are not governed by Section 3118.
Nor is this a case where the Guaranties were appended to or otherwise made part of the Notes. (See Port Distributing Corp. v. Pflaumer (S.D.N.Y.,1995) 880 F.Supp. 204, 209 [if guaranty is “annexed to, and made part of, the promissory note, . . . the entire document is to be considered a negotiable instrument and the provisions of U.C.C. Article 3 apply with full force. [Citations.]”].) Moreover, respondent has never alleged, nor offered any proof in support of such an allegation, that by signing the Notes on behalf of Kim Pacific Trading Company in his representative capacity as President, Chong Soo Kim was an accommodation party on the Notes. (E.g., Plein v. Lackey (2003) 149 Wn.2d 214, 224 [Lender would not have loaned money to corporation unless corporate officers signed promissory notes individually, thus incurring personal liability, which indicated corporate officer was accommodation party to the note].)
The distinction between a surety and a guarantor was abolished by statute and the terms may be used interchangeably. Both mean: “one who promises to answer for the debt . . . of another[.]” (Civ. Code § 2787.)
Respondent essentially concedes this point. Indeed, respondent states the question is not whether Section 3118 applies to the Guaranties. Rather, respondent asserts “the guarantees’ bargained-for language imported, as a matter of contract law, the period applicable to the underlying promissory notes” — namely, the six-year statute of limitations under Section 3118. However, “[t]he statute of limitations is a creature of the Legislature, which alone has power to fix the conditions under which the statute operates and the circumstances necessary to suspend it. [Citation.]” (Rivera v. City of Carson (1981) 117 Cal.App.3d 718, 727.) Indeed, “[t]he power to nullify acts of the legislature prescribing a limitation upon the time within which actions may be commenced is not a judicial prerogative” [Citation].” (Ibid.) Respondent provides no authority from the courts of California or any other state for the proposition that the statute of limitations applicable to a principal may be “imported” into a guaranty by operation of the law of contract or commercial dealings. Moreover, we have already noted above the very limited circumstances under which the Legislature is prepared to recognize a waiver of the statute of limitations defense — such waiver must be in writing and operates to extend the statute for a maximum period of four years unless renewed in writing. (Code Civ. Proc., § 360.5) Respondent reaped the benefit of just such a four-year extension to the applicable statute of limitations, which in this case is four years pursuant to Section 337 of the Code of Civil Procedure. (County of Los Angeles v. Security Ins. Co. (1975) 52 Cal.App.3d 808, 816-817 [Section 337 “states that an action upon an obligation in writing must be commenced within four years from the time it accrues [] [and] applies to the obligation of a surety or guarantor. [Citations.]”].) In sum, respondent had a total of eight years from the date the notes became due in order to commence an action against appellants.
Under the applicable eight-year period, respondent had until approximately June 25, 2003 to file its complaint. However, respondent did not file its complaint until November 2003, outside the applicable time period. Nevertheless, respondent contends the applicable statute was tolled by appellants’ payments on the notes made after their due date. But as appellants point out, the trial court expressly declined to “address questions regarding the tolling of the limitations.” Accordingly, we deem it appropriate to remand to the trial court for factual findings on the tolling question. In light of those factual findings, the trial court should rule on respondent’s claim the statute was tolled on account of payments made by appellants after the notes fell due. Because such remand is necessary, we address appellant’s evidentiary contentions in case they have any bearing on the tolling question.
II
A. Background
Kyoung Soo Yim, an assistant vice president and loan officer employed by respondent, testified at trial to the amounts outstanding on the Notes. Yim testified about certain bank records in his custody pertaining to the Notes and the debts they represented. When Yim took the stand, defense counsel objected to any testimony outside of his personal knowledge. The court instructed counsel to lodge his objections one at a time. Subsequently, counsel asserted Mr. Yim could not testify to the mode of preparation and acquisition of the documents under Evidence Code section 1271. The court permitted direct examination to continue subject to a post-trial defense motion to strike. On cross-examination Yim stated he had worked for respondent for fourteen months, had no direct, personal knowledge of the transactions in question and was “only working from the files.”
Evidence Code section 1271 requires: “(c) The custodian or other qualified witness testif[y] to [the document’s] identity and the mode of its preparation;” in order to admit a document’s contents under the business records exception to the hearsay rule.
Appellants also did not obtain a final ruling on their hearsay objections at the post trial hearing. Appellant therefore waived his right to appeal the issue of Yim’s competency. (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 670 fn. 1 [“Because counsel failed to obtain rulings, the objections are waived and are not preserved for appeal.”].) Even if not waived, appellants’ assertions have no merit, as discussed below.
Throughout direct examination defense counsel reiterated the hearsay objection and successfully had certain bank records excluded. However, defense counsel stipulated to the admission of other exhibits, namely plaintiff’s exhibit numbers 1, 2, 3, 4, 7, 8, 11, 13-A, 15, 16, 17 and 20. Exhibits 1, 2 are the Guaranties and exhibits 3 and 4 are the Notes. Exhibit 15 is respondent’s Interest Control Card, showing the outstanding balances, interest accruals and payments on the Notes through February, 1997. Exhibit 20 is a spreadsheet, prepared by Yim, reflecting the same information as exhibit 15, plus further activity on the accounts through October 15, 2005 (the week of trial). Appellants’ stipulations to exhibits 15 and 20 were repeated at the post-trial hearing subject to reservations about certain discrepancies between the documents, chiefly a credit of $75,000 appearing on 20 but not 15. Taken together, exhibits 1, 2, 3, 4, 15, and 20 reflect appellants’ Guaranties; the indebtedness of Kim Pacific to respondent on the Notes; the outstanding balances on the Notes and the fact appellants made no regular payments after February, 1997. Appellants presented no evidence of their own to contradict plaintiff’s assertions.
The trial court excluded Exhibits 5,6, and 19 on the grounds respondent “did not establish an adequate foundation that overcomes the Kims’ hearsay objections.” The trial court’s ruling in this regard is not at issue.
B. Discussion
Appellants assert Mr. Yim was incompetent to authenticate the bank documents entered into evidence during his testimony because he lacked personal knowledge of their preparation and the transactions they represented. Appellants contend the only documents properly admitted into evidence against them were those they stipulated to.
Appellants do not challenge the validity of the stipulations made at trial. (Spindell v. State Bar of California (1975) 13 Cal.3d 253, 260 [“A stipulation is conclusive upon the parties and the truth of the facts contained therein cannot be contradicted.”].) Moreover, nothing in the record suggests the stipulations violated the law, court rule, or public policy. (Glade v. Superior Court (1978) 76 Cal.App.3d 738, 744 [“[A] stipulation in proper form is binding upon a court unless it is contrary to law, court rule or public policy”].) Plaintiff’s exhibits 1, 2, 3, 4, 15, and 20 were correctly admitted into evidence pursuant to the parties’ stipulations and properly considered by the trier of fact. Absent a showing the stipulations were improper, this court must also accept them as true. (Harris v. Spinali Auto Sales, Inc. (1966) 240 Cal.App.2d 447, 453 [stipulations will not be set aside unless the party requesting relief makes a “clear showing of error or unfairness.”].) Accordingly, the competency of Yim to testify as custodian of respondent’s business records is not relevant.
However, we intend to place no limitation on what new evidence may be considered during proceedings to determine the question of whether the statute of limitations was tolled.
DISPOSITION
The judgment is reversed and the matter remanded for further proceedings in the trial court. Each party to bear its own costs on appeal.
We concur:
Pollak, J., Siggins, J.