ORIGEN CAPITAL INVESTMENTS II, LLC [Note 1] v. OLDE SALEM GROUP, INC. and another [Note 2]

MCGRATH, J. The defendants appeal a ruling by the trial judge on behalf of the plaintiff in its action for breach of contract and money had and received on a commercial loan. The complaint alleged that the defendants had failed to pay money due the plaintiff on a promissory note executed by defendant Dennis Corbett ("Corbett"), on behalf of both his codefendant, Olde Salem Group ("Olde Salem"), and himself individually. The plaintiff, Origen Capital Investments II, LLC ("Origen"), was assigned the note by Citizens Bank, N.A., which had originally contracted with the defendants. We affirm.

Defendants argued that the action was governed by the Uniform Commercial Code ("UCC") -- specifically, G.L. c. 106, § 3-301 et seq. -- and that Origen should be considered a holder in due course subject to all relevant defenses. In particular, defendants argued that since the note was already in default at the time of its assignment, the holder Origen did not have the rights of a holder in due course. G.L. c. 106, § 3-305(c). [Note 4] Defendants also argued that the documents relied on by Origen -- the business credit application (exhibit 1), the welcome letter (exhibit 3), and the business credit line agreement (exhibit 4) -- did not collectively constitute a negotiable instrument under the UCC.

Origen argued that the holder in due course issue had been waived because it was raised for the first time on the day of trial. Origen claimed that the issue had not been raised by the answer as a defense or in the pretrial conference report, and

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denied opening the door by referring to other sections of the UCC.

The trial judge did not make a formal ruling on the defendants' motion as to the UCC issue (G.L. c. 106, § 3-301), but essentially excluded testimony on this issue during the two days of trial. The trial judge did not consider the holder in due course argument in her rulings of law, but rather considered breach of contract, money had and received, quantum meruit, and promissory note.

The defendants raise two issues on appeal. First, they contend the trial judge erred by failing to consider G.L. c. 106, § 3-305(c) to determine both the plaintiff's status as a holder in due course and its use of an affidavit of lost note. Second, they raise the issue whether exhibit 1 (the application) was valid as a negotiable instrument pursuant to G.L. c. 106, §§ 3-104 and 3-106.

Discussion. The Appellate Division reviews the trial judge's findings of fact for clear error. Rock Built Restoration, LLC v. Deacon, 2017 Mass. App. Div. 160, 161. The judge's rulings of law are considered "without deference." Matter of J.L., 2020 Mass. App. Div. 14. The clearly erroneous standard does not protect findings of fact or conclusions based on incorrect legal standards. Barboza v. MacLeod, 447 Mass. 468, 469 (2006); Rock Built Restoration, LLC, supra.

Defendants claim as error the trial judge's denial of their defense based upon the holder-in-due-course UCC provision. Origen objected based on tardiness and lack of notice. Defendants argued unsuccessfully that the UCC was applicable to the suit and did not have to be so raised. Stated another way, the defendants submitted that the UCC is the "law of the case" that the trial judge should have applied in her decision.

An affirmative defense is usually waived if it is not timely pleaded. Anthony's Pier 4, Inc. v. HBC Assocs., 411 Mass. 451, 471 (1991). A judge has discretion to deny an untimely filing of an affirmative defense, considering such factors as the imminence of trial and futility of the claim sought to be added. As defense counsel attempted to raise this issue at trial for the first time, the judge was within her rights in denying the amendment. See Sharon v. City of Newton, 437 Mass. 99, 103 (2002); Anthony's Pier 4, Inc., supra at 471. Contrast Salloway v. Wood, 1994 Mass. App. Div. 219 (affirmative defense had been raised for first time in motion for summary judgment). Moreover, Rule 107 of the Dist./Mun. Cts. R. Civ. P. requires that any state statute relied upon as a defense must be identified, and such reliance identified in a pleading.

As a general rule, where a UCC provision specifically defines the parties' rights and remedies, it displaces common law theories of liability. See Gossells v. Fleet Nat'l Bank, 453 Mass. 366, 370 (2009), where the Supreme Judicial Court held that the UCC governed check collection. Similarly, the Court held in Reading Co-Op. Bank v. Suffolk Constr. Co., 464 Mass. 543, 553 (2013) that the UCC supplanted the common law measure of damages in a suit for misdirected payments based on breach of contract and Article 9 of the UCC. Notably, the plaintiffs in both Gossells and Reading Co-Op. Bank pleaded the relevant UCC sections in their respective complaints.

General Laws c. 106, § 1-103(b) requires that existing principles of law supplement UCC sections unless displaced by particular provisions. Reading Co-Op. Bank, supra at 549. Nothing in G.L. c. 106, § 3-301 et seq. repeals the common law as to breach of contract or money had and received. A statute is not to be interpreted as effecting a change in the common law unless the intent to do so is clearly expressed.

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Zelby Holdings, Inc. v. Videogenix, Inc., 92 Mass. App. Ct. 86, 89-90 (2017) (common law partial payment rule on promissory notes is applicable to UCC statute of limitations of G.L. c. 106, § 3-118).

In the instant case, the plaintiff brought suit under common law contract and money had and received theories. Although the basis for the suit was the defendants' failure to repay a commercial loan (albeit one signed in both an individual and corporate capacity), there was evidently no prayer for relief under the UCC. Similarly, there is nothing in the record before this Appellate Division indicating that the UCC defenses were raised in the defendants' answer or in the pretrial conference report. Defendants did not include the complaint, answer, or pretrial conference report in the record appendix. Nor did the defendants claim at trial (or in their appellate brief) that they raised the UCC in their pleadings. As such, this Division accepts Origen's contention that it was not raised. Defendants argued that the plaintiff relied on other sections of the UCC to establish both that certain trial exhibits (1, 3, and 4) collectively constituted a negotiable instrument and that the loss of the original, signed application was excusable [Note 5] (discussed infra). There is no authority to suggest that such reliance somehow waived the defendants' obligation to timely raise any appropriate UCC defenses. We determine that Origen was entitled to rely on common law theories of recovery and that the defendants were required to raise any relevant UCC provisions as a defense.

As the defendants may not rely on § 3-305(c), its requirement that the obligors (the defendants) prove the instrument was lost or stolen [Note 6] is inapplicable to the present situation. The trial judge did not raise the issue of the lost original of the application (exhibit 1) in her findings of fact (see note 5). The trial judge did reference the affidavit of lost note in her rulings of law.

The affidavit of lost note (exhibit 8) contains, inter alia, a copy of the original note with the averment that it is a true and complete copy of the application (exhibit 1). The trial judge was entitled in her discretion under common law principles to accept this document in the absence of the original. See generally Mass. G. Evid. §§ 1003, 1004 (2021); Capitol Bank & Trust Co. v. Richman, 19 Mass. App. Ct. 515, 520-521 (1985).

Defendants also argue that exhibits 1, 3, and 4 do not collectively constitute a negotiable instrument pursuant to the UCC and that the trial judge's findings of fact on this issue were erroneous. The crux of the defendants' position is that these documents amounted to a conditional promise to pay as defined by G.L. c. 106, § 3-106. Defendants submit that the application signed by Corbett was subject to additional (unsigned) documents affecting its terms and conditions.

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Defendants' reliance on G.L. c. 106, § 3-106 is misplaced. The last sentence of the first paragraph of that section specifically states: "A reference to another writing does not of itself make the promise or order conditional." Similarly, paragraph (b) of that section says in relevant part: "A promise or order is not made conditional (i) by a reference to another writing for a statement of rights with respect to collateral, prepayment, or acceleration . . . ." See also City Coal Co. of Springfield, Inc. v. Noonan, 434 Mass. 709, 714 (2001) (text of indorsement does not amount to conditional promise capable of compromising negotiability of instrument).

Corbett signed the business credit application (exhibit 1) both individually and as the president of codefendant Olde Salem. Exhibit 1, the application, made specific reference to exhibit 3, the welcome letter, and exhibit 4, the business credit line agreement. Exhibit 1 and paragraph 3(a) of exhibit 4 make the instrument payable to the bearer. Paragraph 6 of exhibit 4 makes it payable on demand. Contrast JPMorgan Chase & Co. v. Casarano, Mass. Land Court, No. 07-MISC-344419, 18 LCR 470 (Sept. 16, 2010), aff'd, 81 Mass. App. Ct. 353 (2012) (record did not establish term of note; therefore, it was not a negotiable instrument pursuant to G.L. c. 106, § 3-104). Lastly, it does not require the borrower to do anything in addition to paying for the advances taken (exhibit 4, paragraph 3[a]). As such, the three exhibits do collectively constitute a negotiable instrument pursuant to G.L. c. 106, § 3-104. [Note 7]

Judgment affirmed.