Extending the running of the Statute of Limitations to allow time to work with a cooperative debtor.

Simon PLC Attorneys & Counselors – March 2023 Memorandum

Extending the running of the Statute of Limitations to allow time to work with a cooperative debtor.

While in the course of litigating breach of contract actions, it is not uncommon for Defendants to reach-out in an attempt to negotiate a payment arrangement that avoids the entering of a judgment. On many occasions the payment arrangement will not conclude until well after the statute of limitations would have otherwise expired, making a court action impossible if the Defendant violates the agreement. Recently, the Michigan Court of Appeals handed down a decision which may provide some guidance for how to proceed under such circumstances. 

On August 25, 2022 the Michigan Court of Appeals released the case Dolores R. Yanover, Trustee of Dolores R. Yanover Revocable Trust v. Betty Sue Hancock. While remaining unpublished, the opinion is helpful, as it sheds light on the effect of a debtor reaffirming or re-acknowledging a debt prior to the running of the statute of limitations.

In this case, Plaintiff loaned her neighbor $60,000 in exchange for a note and mortgage on her home. The note called for monthly payments beginning June 21, 1990 and concluding on or before May 21, 1995. According to the testimony of Plaintiff, nothing was ever paid on the note (this was not disputed by Defendant, as Defendant’s advanced age affected her memory).

Despite not receiving any payments, Plaintiff had no desire to foreclose on Defendant’s home. As opposed to foreclosing, on June 28, 2000 Plaintiff prepared a letter for Defendant to sign because Plaintiff believed “Defendant needed to be reminded that she still owed the money to Plaintiff.” Plaintiff’s letter to Defendant stated, in part, “The purpose of this letter is to reaffirm that the interest, which has never been paid and has accrued since 1990 has not been forgiven. The total amount of interest currently due is $66,000 plus. By signing the bottom of this letter, you are reaffirming that this debt not only still exists by that the interest continues to accrue.”

In December, 2019, after not receiving any payments on the loan, Plaintiff filed a three-count complaint alleging breach of contract, unjust enrichment and requesting foreclosure of the property. Defendant’s answer included affirmative defenses, including that the statute of limitations had ran and Plaintiff’s claims were barred. Defendant subsequently filed a Motion for Summary Disposition, which was granted. The Appellate Court however, disagreed.

The Appellate Court’s analysis began with a review of MCL 440.3118 and MCL 600.5803 which sets the statute of limitations on breach of promissory note actions to 6 years and for mortgage foreclosure actions to 15 years. The court acknowledged that on its face, Plaintiff’s statute of limitations had expired. The note had matured on May 21, 1995, making the breach of contract action time barred on or around May 21, 2001 and the foreclosure action time barred on or around May 21, 2010.

Plaintiff, however argued that the signing of the letter on June 28, 2000 had the effect of reaffirming the debt which in turn reset the start date for the running of the statute of limitations. The court acknowledged the validity of Plaintiff’s argument, noting that common law supported the extension of the statute of limitations after a new promise was made to pay an existing debt. As stated in the popular treatise Corbin on Contracts:

“If a debtor makes a new promise to the creditor to pay the existing debt (no bar having yet arisen), this promise is enforceable, because it is sufficiently supported by the existing legal duty of the promisor. This has been previously discussed in prior § 211 of this treatise. In such a case the creditor’s remedy on the new promise is not barred by statutory limitation until the lapse of the full period counting from the time of breach of this new promise. Such a promise extends the time for enforcement.”

This position is logical when a new note is executed which outlines the precise terms of the repayment. No new consideration is needed as the agreement to not bring suit on the original defaulted debt serves as consideration for the new promise (it is important to note this would not be the case if the debt was already time barred at the time of the promise).

The court then turned to the June 28, 2000 letter to see if it had the effect of extending the time for enforcement. The court ultimately concluded that the June, 2000 letter “acknowledged the existing debt” and later concluded the “letter renewed the debt.” In its analysis and without further explanation, the court stated “Equally important is the defendant’s acknowledgement that she was ‘reaffirming that this debt not only still exists, but that the interest continues to accrue’” further stating that “These statements were sufficient to raise a ‘presumption of an implied promise to pay the obligation.’” This ruling was an extension of a ruling handed down by the Michigan Supreme Court in In re Booth’s Estate 326 Mich 337 (1950), in which the court stated “the intent of the [debtor] in acknowledging the correctness of the statement is an important factor in determining whether there was a promise to pay a present existing debt.” 

It is interesting to note how little it took for the court to conclude a new promise had been made. By Plaintiff’s own testimony, the letter was only intended to remind the defendant that she still owed Plaintiff money and that interest was accruing. Thus, it could be argued that any response other than denial, when asked to acknowledge an existing debt, continues as acknowledgement and a new/continued promise to pay the debt resulting in the resetting the statute of limitations. 

Of further interest is the court’s determination for when the statute of limitations began on this re-acknowledged debt. Though the debt was fully matured and due as of the date of the reaffirmation (June 28, 2000), the court came to the odd conclusion that the “original terms of the mortgage and note began anew at the date of the signing” (despite there being no specific agreement to this effect). The court did not simply start the running of the statute of limitations for the reaffirmed $66,000 debt on June 28, 2021, but rather restarted the entire loan as of that date. Therefore, in the Yanover case, the statute of limitations did not fully run until June 28, 2011 for the breach of contract action and not until June 28, 2020 for the foreclosure action, thus preserving Plaintiff’s ability to foreclose on Defendant’s residence and recover at least some of the amounts due and owing. What is not discussed, (but which presumably would be the case) is whether this reaffirmation also relieved Plaintiff of its right to bring an action for breach of contract unless and until the reaffirmed contract was re-breached and all payments been accelerated or had otherwise become due.

If the Yanover case stands for any one principle when negotiating pre-judgment payment plans with defendants, it is to get all agreements in writing and ensure the defendant acknowledges the existence of the debt. Even if this acknowledgement provides unhelpful with ultimately getting a judgment against the Defendant, the Yanover case makes it clear it will at least provide for restarting of the statute of limitations affording you additional time to file a complaint in the event the payment agreement is breached and possibly preserving your cause of action altogether.

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