I Guaranty It: Southern District Of California Finds Loan Documents To Be Self-Authenticating Under Rule 902(9)

Federal Rule of Evidence 902(9) provides that

The following items of evidence are self-authenticating; they require no extrinsic evidence of authenticity in order to be admitted:...

(9) Commercial Paper and Related Documents. Commercial paper, a signature on it, and related documents, to the extent allowed by general commercial law.

The recent opinion of the United States District Court for the Southern District of California in Rancho Mountain Properties, Inc. v. Gray, 2012 WL 1192755 (S.D.Cal. 2012), provides one of the few examples that I have seen of a court applying Rule 902(9).

Gray arose

from a guaranty executed by Defendants Ray Gray and Linda Gray (husband and wife) to secure the purchase of real property located in Paciences, California, by Pfau, Pfau & Pfau, LLC (“Pfau”). On August 28, 2006, Pfau entered into a Loan Agreement with CMR Mortgage Fund II, LLC (“CMR II”) for the purpose of acquiring land and developing residential lots. The loan was secured by liens on real properties located in San Diego, Fresno, and San Benito Counties. Contemporaneously with the Loan Agreement, Pfau executed a Promissory Note, in the principal amount of $19,500,000, payable to CMR II. CMR II loaned $19,500,000 in principal to Pfau. Defendants made, executed, and delivered a General Guaranty and Indemnity Agreement (“Guaranty”) pursuant to which Defendants guaranteed “the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all of [Pfau's] indebtedness, obligations and liabilities to the Lender.” 

Pfau's and Defendants' obligations under the loan and related Guaranty were assigned by CMR II to ING USA Annuity and Life Insurance Company (“ING USA”), which assigned the obligations to Lion II Customs Investments, LLC (“Lion II”), which then assigned the obligations to Plaintiff. Starting on July 1, 2008, Pfau failed to make timely interest payments. CMR II paid Pfau's monthly payments through January 2009, but failed to make payments after that time. In addition, Pfau filed for relief under Chapter 11 in the United States Bankruptcy Court, Southern District of California, on December 16, 2008. Pfau's failure to timely make its scheduled interest payments as well as its filing for relief under Chapter 11 constituted a default on the loan documents.

Thereafter, on February 18, 2011, the Plaintiff initiated an action to recover amounts due under the Guaranty, as a result of Pfau's default. The Plaintiff thereafter filed for summary judgment based upon loan documents, including the Guaranty.

In response, the defendants first claimed that these documents were hearsay, but the court disagreed, concluding that the documents were

operative documents, or “verbal acts.” Operative documents include contracts, commercial paper, and negotiable instruments. They are not hearsay, and therefore need not fall under an exception to hearsay in order to be admitted into evidence.

The defendants also claimed that the documents were not properly authenticated, and the court again disagreed, finding that

the loan documents are self-authenticating documents under Federal Rule of Evidence 902(9)....Under Rule 902(9), extrinsic evidence of authenticity does not need to be provided for “[c]ommercial paper, a signature on it, and related documents, to the extent allowed by general commercial law.” Under California Commercial Code Section 3308(a), “In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings.” Moreover, “the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature." CAL. COM.CODE § 3308(a). Because the signer here is alive and competent, the loan documents are self-authenticating. Accordingly, the loan documents are admissible and may be properly considered by the Court.

-CM