Case Name: Joe Macchiarella v. Paul Hillig
Case No.: 2017-CV-317582

Demurrer and Motion to Strike to the Complaint by Defendant Paul Hillig

Factual and Procedural Background

This is an action for breach of a promissory note. On July 24, 2014, plaintiff Joe Macchiarella (“Plaintiff”) made a loan to defendant Paul Hillig (“Defendant”) evidenced by a promissory note (the “Note”) in the amount of $100,000. (Complaint at ¶ 6; Exhibit A.) Under the Note, Defendant was required to repay the principal amount in five equal monthly installments of $20,000 beginning on September 15, 2014 through January 15, 2015. (Id. at ¶ 7.) Defendant made one payment of $20,000 to the Plaintiff under the terms of the Note. (Id. at ¶ 8.) Defendant however breached the Note by failing to pay the principal amount by January 15, 2015. (Id. at ¶ 9.) Plaintiff has performed all of the conditions, covenants, and promises required to be performed in accordance with the Note. (Id. at ¶ 10.) Defendant has defaulted under the terms of the Note as he has failed and refused to pay all sums due thereunder. (Id. at ¶ 11.)

On October 17, 2017, Plaintiff filed a verified Complaint against Defendant alleging causes of action for (1) money due on Plaintiff’s written promissory note; and (2) common count for money lent.

Currently before the Court is Defendant’s demurrer and motion to strike to the Complaint. Plaintiff filed opposition to the demurrer. Plaintiff filed a non-opposition to the motion to strike. Defendant filed reply papers.

Demurrer to the Complaint

Defendant demurs to the first and second causes of action on the following grounds: (1) the claims fail to state a cause of action; and (2) the claims are barred by the two-year statute of limitations applicable to oral contracts. (See Code Civ. Proc., § 430.10, subd. (e); see also Hightower v. Roman Catholic Bishop of Sacramento (2006) 142 Cal.App.4th 759, 765 [“When a ground for objection to a complaint, such as the statute of limitations, appears on its face or from matters of which the court may or must take judicial notice, a demurrer on that ground is proper.”].)

Meet and Confer

As a preliminary matter, the Court notes that Defendant did not meet and confer with Plaintiff with respect to issues regarding the demurrer before filing the motion.

Before filing a demurrer, a demurring party must “meet and confer in person or by telephone” with the opposing party to determine “whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., § 430.41, subd. (a).) This conference should occur at least five days before the deadline to file. (Code Civ. Proc., § 430.41, subd. (a)(2).)

When filing the demurrer, the demurring party must include a declaration stating either “the means by which the demurring party met and conferred with [the other party] and that the party did not reach an agreement resolving the objections raised in the demurrer” or “[the other party] failed to respond to the meet and confer request of the demurring party or otherwise failed to meet in good faith.” (Code Civ. Proc., § 430.41, subd. (a)(3).) A court’s determination the meet and confer process was insufficient is not a ground to sustain or overrule a demurrer. (Code Civ. Proc., § 430.41, subd. (a)(4).)

Here, Defendant did not submit any declaration to the Court showing his efforts to meet and confer with Plaintiff on issues related to the demurrer. However, because a deficient meet and confer process is not a ground to sustain or overrule a demurrer, the Court will consider the merits of the motion. Defense counsel is admonished to comply with court rules and procedures with respect to future filings.

Legal Standard

In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

First Cause of Action: Money Due on Plaintiff’s Written Promissory Note

With respect to the first cause of action, Plaintiff alleges he agreed to loan Defendant the principal amount of $100,000. (Complaint at ¶ 6.) The agreement was memorialized in a Note attached as Exhibit A to the Complaint. Defendant allegedly defaulted under the terms of the Note by refusing to pay all sums due and owing to the Plaintiff. (Id. at ¶ 11.) On demurrer, Defendant argues the first cause of action fails to state a valid claim and is barred by the two-year statute of limitations.

Failure to State a Cause of Action

Defendant first argues the document attached as Exhibit A to the Complaint does not constitute a promissory note. Exhibit A contains sections titled “Promise to Pay” and “Installments” that include certain blank spaces for the name of the lender, borrower, amount of payments, and the interest rate. As these sections have been left blank, Defendant claims there is no written contract.

Defendant however concedes that Exhibit A also contains recitals which constitute statements of fact. In fact, Exhibit A includes the following: (1) borrower information; (2) lender information; and (3) loan information. (See Complaint at Exhibit A.) The loan information section includes the total loan amount, loan period, interest rate, and payment schedule. Finally, Exhibit A contains signatures by Plaintiff and Defendant as the lender and borrower respectively. (Ibid.) Looking at the exhibit as a whole, the Court finds that Exhibit A constitutes a written promissory agreement memorializing the terms of Plaintiff’s loan to Defendant. (See Hunt v. United Bank & Trust Co. (1930) 210 Cal.108, 115 [“It is a primary rule of interpretation that contracts must be construed as a whole that is, from their four corners, and the intention of the parties is to be collected from the entire instrument and not detached portions thereof”].)

Defendant next argues that Exhibit A does not qualify as a promissory note as there is no provision for interest. This argument lacks merit because, as stated above, Exhibit A includes a section for “Loan Information” containing a space for the interest rate which identifies two numbers: (1) 50% net profit; and (2) min. 20%. (See Complaint at Exhibit A.) While somewhat ambiguous, the Court may reasonably construe this provision as allowing for a minimum interest rate of 20% on the subject loan. In any case, the Court must accept this allegation as true for purposes of demurrer. (See Olson v. Toy (1996) 46 Cal.App.4th 818, 823 [for purposes of demurrer, we accept these allegations as true].)

Even if Plaintiff alleges an interest rate of 20%, Defendant claims such a rate is usurious thus making the entire agreement “null and void.” (See Cal. Const., art. XV, § 1 [rate of interest upon a loan for money shall be 7%].) Defendant however fails to support this contention with proper legal authority. Furthermore, “[w]hen a loan is usurious, the creditor is entitled to repayment of the principal sum only. He is entitled to no interest whatsoever.” (Gibbo v. Berger (2004) 123 Cal.App.4th 396, 403 citing Winnett v. Roberts (1986) 179 Cal.App.3d 909, 921.) Therefore, even an agreement with a usurious interest could still be enforceable as it would allow for repayment of the principal amount of the loan without interest. Accordingly, this argument is not sustainable on demurrer.

Finally, Defendant argues Exhibit A establishes a sharing of profits between the parties and thus constitutes evidence of an oral business venture, not a promissory note. However, whether the parties entered into any such oral business venture is not readily apparent from the allegations of the Complaint or Exhibit A. Thus, this argument is beyond the scope of demurrer which considers only the well-pleaded facts and any material subject to judicial notice. (See Blank, supra, 39 Cal.3d at p. 318.) For purposes of this motion, Plaintiff has alleged sufficient facts to state a claim for money due on the Note.

Therefore, the demurrer to the first cause of action on the ground that it fails to state a claim is OVERRULED.

Statute of Limitations

Alternatively, Defendant argues the first cause of action is barred by the two-year statute of limitations.

“Statute of limitations is the collective term applied to acts or parts of acts that prescribe the periods beyond which a plaintiff may not bring a cause of action.” (V.C. v. Los Angeles Unified School Dist. (2006) 139 Cal.App.4th 499, 509.) “A plaintiff must bring a claim within the limitations period after accrual of the cause of action. In other words, statutes of limitation do not begin to run until a cause of action accrues. Generally speaking, a cause of action accrues at the time when the cause of action is complete with all of its elements.” (Id. at pp. 509-510 [internal citations and quotation marks omitted].)
“A demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. In order for the bar…to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42 [citation omitted].)

“To determine the statute of limitations which applies to a cause of action it is necessary to identify the nature of the cause of action, i.e., the ‘gravamen’ of the cause of action. ‘[T]he nature of the right sued upon and not the form of action nor the relief demanded determines the applicability of the statute of limitations under our code.’” (Hensler v. City of Glendale (1994) 8 Cal.4th 1, 22-23 [internal citations omitted].)
“What is significant for statute of limitations purposes is the primary interest invaded by defendant’s wrongful conduct.” (Barton v. New United Motor Manufacturing, Inc. (1996) 43 Cal.App.4th 1200, 1207.)

Defendant argues the first cause of action is subject to the two-year statute of limitations set forth in Code of Civil Procedure section 339. That section provides “[a]n action upon a contract, obligation, or liability not founded upon an instrument of writing” must be brought within two years. (Code Civ. Proc., § 339.) Defendant contends the two year statute of limitations period applies as the parties entered into an oral business venture agreement. (See Memo of P’s & A’s at p. 5:19-20.) Since the alleged breach occurred on January 15, 2015, Defendant asserts that the Complaint needed to be filed within two years of that date. As the Complaint was filed on October 17, 2017, Defendant argues the claim is time barred.

Defendant’s argument is misplaced for the reasons stated above. In particular, the first cause of action arises from breach of a written instrument (i.e., the Note) and thus the statute of limitations codified in Code of Civil Procedure section 339 is not applicable. Instead, as the opposition points out, the four-year statute of limitations under Code of Civil Procedure section 337 applies to “an action upon any contract, obligation, or liability founded upon an instrument in writing.” (Code Civ. Proc., § 337.) Therefore, under the four-year statute of limitations, the first cause of action is timely.

Accordingly, the demurrer to the first cause of action based on the statute of limitations is OVERRULED.

Second Cause of Action: Common Count for Money Lent

The second cause of action is a common count for money lent. To state a common count for money lent, the plaintiff need only allege that the defendant is indebted in a certain sum for money loaned by the plaintiff and that the defendant has not repaid the money. (Pleasant v. Samuels (1896) 114 Cal. 34, 36-38; see 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 564, p. 691.) Defendant demurs to the second cause of action on the same grounds raised to the first cause of action. Those arguments were rejected for the reasons stated above and thus the Court finds that Plaintiff has alleged sufficient facts to state a common count for money lent.

Therefore, the demurrer to the second cause of action on grounds that it fails to state a claim and based on the statute of limitations is OVERRULED.

Motion to Strike Portions of the Complaint

Defendant moves to strike paragraph 13 of the first cause of action on the ground that the allegations therein are irrelevant. (See Code Civ. Proc., §§ 435, 436.) Plaintiff does not oppose the motion to strike. (See Plaintiff’s Notice of Non-Opposition to the Motion to Strike.) As the motion appears to be well-taken, the motion to strike is GRANTED WITHOUT LEAVE TO AMEND.