Lenders filing loan enforcement cases in Indiana should know that their actions may be time-barred if not filed within six years.
What is a “statute of limitations”? When trying to describe general legal concepts, I often turn to (what else?) Black’s Law Dictionary:
Statute of limitations. A statute prescribing limitations to the right of action on certain described causes of action . . . that is, declaring that no suit shall be maintained on such causes of action . . . unless brought within a specified period of time after the right accrued. Statutes of limitation . . . are such legislative enactments as prescribe the periods within which actions may be brought upon certain claims or within which certain rights may be enforced.
Basically, a statute of limitations is a deadline to file a lawsuit.
2 statutes – 6 years. The Indiana Code’s provisions applicable to statutes of limitation include Ind. Code § 34-11-2-9 “Action upon promissory notes, bills of exchange, or other written contracts for payment of money:”
An action upon promissory notes . . . or other written contracts for the payment of money executed after August 31, 1982, must be commenced within six (6) years after the cause of action accrues.
Indiana’s version of the Uniform Commercial Code, specifically Chapter 3.1 “Negotiable Instruments,” has a similar provision at I.C. § 26-1-3.1-118 “Action to enforce obligation of party--”:
(a) Except as provided in subsection (e) [not applicable], an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six (6) years after the due date or dates stated in the note or, if a due date is accelerated, within six (6) years after the accelerated due date.
Both statutes seemingly apply to promissory notes, although as noted in my January 16, 2008 post, not all notes are negotiable instruments under the UCC. While the two different statutes create some confusion as to which statute applies and when, both statutes fortunately have a six-year limitations period – a “distinction without a difference” kind of situation.
The complicator - accrual. Although Indiana law may be clear as to when the limitation period ends (six years), the more difficult issue surrounds when the limitation period begins. What event, date, etc. causes the statute of limitations to start running? Based upon my limited research for this post, there is not a readily-available, crystal-clear answer to the question.
The “after the cause of action accrues” language in I.C. § 34-11-2-9 has been, and continues to be, subject to debate in all sorts of cases. That language usually refers to the date the plaintiff knew or should have known it had a cause of action (i.e. a known default). Here, the law is complicated by the fact that most promissory notes contain “no waiver” clauses, which serve to negate what could be various default-related triggers.
I.C. § 26-1-3.1-118(a) is a little more clear, however, and suggests the applicability of a couple of different accrual dates: either (1) the date of maturity or (2) the date of acceleration.
The basics. Although I have not comprehensively researched Indiana law on the subject, I think it’s safe to say that, generally, the day after the note’s maturity date usually will be the first day of the six-year limitations period. If, however, the lender accelerated the note, then the date of acceleration may trigger the limitations period. Of course there are many circumstances that might call for a different result. The primary purpose of today’s post simply was to address the six-year time period and advise lenders and their counsel that, normally, you’ve got six years to initiate a promissory note enforcement action. Given the negative consequence of an untimely lawsuit (i.e. loss of the case), it is good practice to be conservative in calculating deadlines of this type.