Statute of limitations on an Illinois breach of an installment contract? You may have longer than you realize.

Simon PLC Attorneys & Counselors – January 2023 Memorandum

Statute of limitations on an Illinois breach of an installment contract? You may have longer than you realize. 

Troy, Michigan –Simon PLC is frequently approached by clients who discover an old file that hasn’t been worked in years. More often than not, the initial communication includes an expression of concern with respect to the statute of limitations in the form of a statement along the lines of “I’m not sure if anything can be done about this matter, I believe we may have a statute of limitations issue.” Statutory law as well as recent case law suggests there may be a lot longer than you think to bring a breach of contract action in Illinois and at least recover some of the amount due and owing.

The litigation of instalment contracts is nothing new in Illinois. It has long been established that a party entitled to payments may bring separate actions on each installment as it becomes due or wait until several installments are due and then sue for all such installments in one cause of action. Furthermore, if a plaintiff brings an action for installments due on a contract this action will not bar a later action to collect installments, which subsequently become due. See Brown v. Charlestowne Group LTD 581 N.E.2d 831 (1991) generally. This principal, was further expounded, with respect to res judicata in Wilmington Savings Funds Society v. Barrera, 162 N.E.3d 1068 (2020) with what has been proclaimed the “new default rule.” In Barrera the court concluded that the rule of one instrument, two filings (in accordance with 735 ILCS 5/13-217- “the single refiling rule”) is inapplicable where there has been a new default. Plaintiff could still bring an action for a new default despite being unsuccessful in past suits on the same instrument, and not be subject to a res judicata defense. 

The evolution of case law pertaining to instalment contracts next centered around a loan that had already been accelerated. In McHenry Savings Bank v. Moy, 182 N.E.3d 797 (2021) the court addressed the foreclosure of an instalment loan in which Plaintiff’s Complaint stated that “all amounts due have been accelerated.” Moy dealt with a third filing of a foreclosure after the first two filing were adjudicated in favor of the Defendant (the second simply for res judicata reasons, resulting in dismissal with prejudice). The bank then brought a third foreclosure nine years after the original foreclosure, alleging the Defendant failed to pay the monthly payments for July and August 2018. The bank moved for summary judgment alleging it was claiming new defaults and thus was not vulnerable to a res judicata defense. The Defendant responded by claiming a new default was not possible, as the Note had been previously accelerated, was never reinstated or modified and she had already prevailed in the two previous actions. In its ruling, the court stated that where the mortgagor prevails in a foreclosure action, the notice of the acceleration is effectively ruled upon and denied and the mortgage is reinstated. Thus, the loan once again becomes de-accelerated, by way of the court ruling in favor of the Defendant, and a new acceleration notice, with a new due date would have to be sent. Once again, while Moy was concerned with a res judicata defense, what is important to note is the court’s determination that once a loan has been accelerated, it can be un-accelerated.

Acceleration of a loan is important with respect to instalment contracts. Illinois statute 735 ILCS 5/13-206 has made it clear that except as provided in section 2-725 of the Uniform Commercial Code, actions on notes and written contracts shall be commenced within 10 years after the cause of action accrued. The act further states that a cause of action on a promissory note payable at a definite date accrues on the due date or date stated in the promissory note or the day upon which the promissory note is accelerated. A common misconception with a lender is that the statute of limitations with respect to enforcement of the entire loan begins to toll when the Defendant initially breaches. This is not true. As pointed out in Brown v. Charlestowne Group, each missed payment is a separate default and logically each would be subject to its own statute of limitation period. Once a contract has been accelerated however, this begins the running of the statute of limitations for action on the entire amount due.

Many lender’s acceleration letters merely state that the entire balance may be requested if the default is not cured. Thereafter the actual act of filing the Complaint is what accelerates the loan. This conforms with the decision in Moy with respect to the dismissing of the Complaint having the effect of automatically de-accelerating the loan. This concept was once again addressed in The Bank of New York Mellon v. Dubrovay 2021 IL App (2d) 190540. While still ruling on matters concerning res judicata, the findings in the Dubrovay opinion shed light on how the court may rule on a statute of limitations challenge. 

In Dubrovay the court once again dealt with the foreclosure of a previously accelerated (via the language of the Complaint) Note and Mortgage that had been voluntarily dismissed three times previously. The defendant once again stated they did not make any payments nor agree to any modifications after the original default in October 2010. In an effort to avoid offending the single refiling rule, Plaintiff filed its fourth foreclosure alleging a different default date. Plaintiff argues that it “gave up 30 months of interest and, potentially, other monetary amounts when it elected to sue on the new default date” concluding that this new default date created a different set of operating facts making it immune to res judicata attack. In response, the defense argued that once the note was accelerated it merged into one single obligation and Plaintiff no longer possessed the ability to forgive 30 months of interest to alter the default date.

In its opinion, the court extended its ruling in Moy and agreed with Plaintiff that the voluntary dismissal of its three prior foreclosure complaints de-accelerated the debt and reinstated the Note and Mortgage. The court followed the reasoning articulated in the persuasive case Freedom Mortgage Corp. v. Engel 169 N.E.3d 912 (N.Y. 2021) stating “If commencement of a foreclosure action is sufficient to put the borrow on notice that the loan has been accelerated, then the bank’s voluntary dismissal is sufficient to put the borrower on notice that the acceleration has been revoked or withdrawn.” The court differentiated Dubrovay from Deutsche Bank Trust Co. Americas v. Sigler, 2020 IL App (1st) 191006, which came to a different conclusion, by noting the Sigler court pointed out that the Plaintiff  sent the borrowers a Notice of Acceleration prior to the filing of the Complaint. The court observed that there is no record of an acceleration notice sent by BONY to the Dubrovays actually invoking the acceleration clause. This made the dismissal of the Complaint a sufficient act to de-accelerate the loan, whereas in Sigler there was no affirmative act of de-accelerating the loan, thereby making a subsequent action vulnerable to res judicata attack.

The Dubrovay matter is of importance with respect to statute of limitations analysis as it directly states a Plaintiff can de-accelerate its loan and allows the Plaintiff to manipulate the default date to avoid potential defense (in this case it was a res judicata defense). The case also acknowledged the persuasive nature of Freedom Mortgage Corp v. Engel. In Engel, the court took away all doubt with respect to whether the reasoning for de-acceleration mattered. The court explicitly stated they reject the theory that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. Additionally, in 53rd Street LLC v. U.S. Bank National Association 8 F. 4th 74 (2001), the Second Circuit Federal Court, relying heavily on Engel, ruled that a lender sending a letter expressly de-accelerating the previously accelerated loan was sufficient to de-accelerate said loan. The court also clarified that the Engel opinion did not suggest that a voluntary dismissal of a complaint was the only affirmative act that can successfully de-accelerate a mortgage, pointing out that the court stated other “affirmative acts” would suffice.

Illinois Statutory Law as well as the reading of Dubrovay (coupled with the persuasive Engel and 53rd Street matters) suggest that the sending of a letter expressly de-accelerating a loan could save a neglected loan from a Statute of Limitations attack. After de-acceleration, a lender should re-accelerating only those instalment payments still within the statute of limitations.  De-acceleration could save a lender from a potential forfeiture of all amounts due and owing on a forgotten or neglected file. In the event a neglected file is discovered and the loan was never accelerated, relief can still be sought on all payments less than 10 years post-default. If all payments have already come due, an acceleration notice is not even necessary unless the contract requires. All lenders should never forget that the contract still governs the conduct of the parties and may expressly state what actions are needed to de-accelerate a loan. Regardless of what actions are needed, Dubrovay gives lenders hope that old neglected files can be resurrected by way of de-acceleration and some recovery may be realized on otherwise forgotten files. 

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