Did Payment Start the Statute of Limitations?
In a recent case in Connecticut, the issue was raised about when a statute of limitations begins to run.
In a recent case in Connecticut, the issue was raised about when a statute of limitations begins to run. In that case, the defendant alarm company applied for and received credit from the plaintiff, a distributor of fire and home security equipment. The initial credit application required that the account be paid in full within 30 days of shipment, but the plaintiff often permitted the defendant to extend the credit limits longer than the 30 days as long as a lump sum payment was made from time to time. The defendant stopped making payments on the account and the plaintiff filed an action to recover damages from the defendant for breach of contract.
In the action, the defendant claimed that the plaintiff’s action involved a contract for sale of goods and therefore was barred by the four-year statute of limitations. The trial court, after determining that the parties had modified their original agreement and converted their arrangement into an account stated, rather than an invoice-by-invoice system, determined that the defendant’s last payment constituted an acknowledgement of the debt and was therefore the trigger date for the running of the statute of limitations and that the action was brought within the four years from the trigger date.
The defendant appealed, asserting that its last payment was due 30 days from the delivery of the last purchase and because the present action was not commenced for more than four years after the last purchase, the action was time barred.
The court pointed out that during the trial it was indicated that the plaintiff never enforced the 30-day requirement. The defendant permitted the plaintiff to make lump sum payments on the account, periodically, but not at regular and fixed intervals. The plaintiff did not have to pay the previous invoice before the plaintiff would ship another order nor did the defendant have to bring the account current as a condition precedent to shipment.
The court pointed out that by modifying their original agreement, the parties converted their arrangement. The court then concluded that the significance of this classification was that it precludes classification of the billing practice as an “invoice-by-invoice” system and therefore allowed the court to consider whether the last payment on account constituted an acknowledgement of the debt and was therefore the “trigger date” for the running of the statute of limitations. The court concluded that it was, and because the action was brought within four years from the trigger date the trial court rendered judgment in favor of the plaintiff.
The defendant argued that because the parties modified the agreement orally, which modified the contract into an oral contract and therefore the court should have applied a three-year statute of limitations applicable to oral contracts.
The appeals court pointed out that it must first address whether the parties modified their agreement and, second, whether defendant’s partial payments on the debt were made in acknowledgement of the debt so as to start the statute of limitations. The question of whether the parties intended to modify the contract was a question of fact that fell within the province of the trial court. In the case the trial court concluded that there was no question that the parties knowingly and intelligently ignored the payment terms of their agreement and instead created an open account which, in law, constituted an account stated.
The court determined that the trial court reasonably could have found that the parties entered into a new agreement for an open account. However, the court pointed out that during the period of time in which the account was unpaid, the defendant requested forbearance from the plaintiff, while simultaneously acknowledged both the amount and the past due status of the bill. The court found that this forbearance request was a fresh promise to pay the old debt. Thereafter the defendant made two lump sum payments. The lower court found that these payments indicated the intent of the defendant to acknowledge and to pay the account balance.
Therefore the court concluded that the lower court properly found that the defendant’s last payment constituted an acknowledgment of the debt and also operated as the date on which the statute of limitations began to run. The court consequently rendered a judgment in favor of the plaintiff.
Your contract with your subscriber should cover the third-party monitoring center, as well as your customer. The subscriber is paying you for the service and you are paying the third-party monitoring station. It is important to make certain that you have a valid enforceable contract with your subscriber so that the protective provisions of your contract are in force between you, your subscriber, the third-party monitoring center or any other third-party installers, vendors or any other party who may be involved in the installation or service pursuant to your agreement. Does the third-party monitoring company require a separate agreement with your subscriber? Not if they are covered in your agreement. Is there any additional exposure on your part if the third-party monitoring company insists on a separate agreement? No, not if you have properly included the monitoring company in your agreement in addition to the provisions that otherwise protect you.
Q We are an alarm sales and installation company. Our monitoring is done with a third-party monitoring station. Our third-party monitoring station insists that it has a contract directly with our customer, the end user. Is this necessary?
To read the answer, go to SDMmag.com. Click the Columns tab and select Security and the Law.
To ask Les Gold a question, e-mail email@example.com.