Indiana’s Statute Of Limitations For “Open Account” Claims: Supplier’s Case Too Late

Lesson. The deadline for creditors to file suit on an “open account,” including a guaranty of an “open account,” is six years.

Case cite. Ganz Builders v. Pioneer Lumber, 59 N.E.3d 1025 (Ind. Ct. App. 2016)

Legal issue. Whether a creditor’s claims against a debtor and a guarantor were barred by the statute of limitations.

Vital facts. In 1996, the defendant debtor, a builder, signed an application for a line of credit with the plaintiff creditor, a supplier. The debtor also signed a credit account agreement. The debtor’s president signed a personal guaranty agreement in connection with the arrangement. The last charge against the account was February 21, 2006. In November of 2012, the creditor filed its complaint against the debtor and the guarantor for a failure to make payments under the terms of the agreements.

Procedural history. The parties filed cross-motions for summary judgment against one another related to liability under the agreements and defendants’ statute of limitations defense. The trial court granted summary judgment for the creditor.

Key rules.

• Indiana’s statute of limitations for actions on accounts and contracts not in writing is six years pursuant to Ind. Code 34-11-2-7. I.C. 34-11-3-1 governs the accrual date: “an action brought to recover a balance due upon a mutual, open, and current account … is considered to have accrued from the date of the last item proved in the account on either side.”
• I.C. 34-11-2-9 controls actions based upon promissory notes and other written contracts for the payment of money. Although this statute also has a six-year limitation period, the accrual date is different. See my 3/9/09 post.
• An action upon a contract in writing, other than for the payment of money, must be commenced within ten years. I.C. 34-11-2-11.
• Indiana case law is settled that a written credit card application and/or agreement does not constitute a written contract or a promissory note. Rather, “the contract creating the indebtedness is formed only when the customer accepts the bank’s offer of credit by using the card.” This type of arrangement is materially different than a promissory note or installment loan. As such, Indiana treats a credit card relationship as an “open account” as opposed to being governed by a written contract per se. For more, see my 9/27/10 post.
• The Court in Ganz cited to Black’s Law Dictionary to define an open account as: “an account that is left open for ongoing debit and credit entries by two parties and that has a fluctuating balance until either party finds it convenient to settle and close, at which time there is a single liability.”

Holding. The Indiana Court of Appeals reversed the trial court’s decision and held that the creditor untimely filed its claims against both the debtor and the guarantor.

Policy/rationale. In Ganz, there were fluctuating balances resulting from a series of transactions, and the creditor kept the account open in anticipation of future purchases. The Court thus concluded that the credit arrangement was in the nature of an open account, like a credit card, as opposed to one based upon a written contract or a promissory note – both of which have different statutes of limitations and accrual triggers.

The accrual date under I.C. 34-11-3-1 – “date of the last item proved in the account on either side” – meant the last charge to, or the last payment made on, the account. In Ganz, the last activity at issue was February 21, 2006, meaning that the latest the creditor could file a claim was February 21, 2012. November of 2012 was too late.

Regarding the guarantor, the Court basically approached the two defendants the same. The separate written guaranty still fell under the open account analysis, according to the Court. Although the accrual date arguably may have been slightly different, the same six years applied, so the guarantor, too, prevailed on the defense.

Related posts.

• Indiana’s Statute Of Limitations For The Enforcement Of Promissory Notes – 6 Years
• Credit Card Debt's 6-Year Statute Of Limitations Held To Commence When Account Due

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I frequently represent creditors and debtors in business-related collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Lender Prevails In Interpretation Of Limitation Provision In Guaranty

Lesson. When negotiating a damages limitation in a payment guaranty, consider whether the limited amount guaranteed arises before or after any post-default credits, such as proceeds from the sale of mortgaged property. Then, capture the intent as clearly as possible in the langauge of the guaranty itself.

Case cite. Broadbent v. Fifth Third, 59 N.E.3d 305 (Ind. Ct. App. 2016).

Legal issue. Whether a payment guaranty was ambiguous as it related to the limitation on the amount of liability.

Vital facts. In connection with a sizable commercial mortgage loan, the defendant executed a payment guaranty, which had a limitation provision stating in relevant part: “Guarantor shall be limited to fifty percent (50%) of the outstanding balance of principal and accrued interest under the Note; provided … that any reduction … shall be applied first to that portion of the Liabilities not guaranteed by Guarantor….” Following a default, the total debt amount was about $7.5MM, and the lender pursued the guarantor as part of the loan enforcement action. In the process, the parties agreed to a receiver’s sale of the mortgaged real estate resulting in an agreed-up credit against the debt in the amount of $4.4MM. The factual dispute ultimately surrounded whether the guarantor’s 50% liability applied before or after the credit for the sale proceeds.

Procedural history. The trial court granted summary judgment for the lender and concluded that the guarantor owed 50% of the debt before the credit.

Key rules. It is well-settled in Indiana that “a guaranty is a conditional promise to answer for a debt or default of another person, such that the guarantor promises to pay only if the debtor/borrower fails to pay.”

Generally, the nature and extent of a guarantor’s liability depends upon the terms of the contract, and a guarantor cannot be made liable beyond the terms of the guaranty. Nevertheless, the terms of a guaranty should neither be so narrowly interpreted as to frustrate the obvious intent of the parties, nor so loosely interpreted as to relieve the guarantor of a liability fairly within their terms.

If a guaranty is unambiguous, extrinsic evidence (such as an affidavit) of a party’s understanding of the guaranty (i.e. intent) is not to be considered.

Holding. The Indiana Court of Appeals affirmed the trial court’s ruling.

Policy/rationale. The guarantor argued that the limitation provision in the guaranty was ambiguous because it did not state “when” the “outstanding balance” was to be determined. He submitted an affidavit stating that his intent was that any liability was to be determined after all payments on the debt had been applied. The Indiana Court of Appeals agreed with the trial court that the relevant provision was unambiguous on the key issue. The “when” was ten days after the maturity date and upon written demand. Looking at the guaranty as a whole, the Court found that the language clearly required the guarantor to pay 50% of the accelerated debt. The Court went on to discuss precisely how the damages against the guarantor were to be calculated, including when and how to apply the $4.4MM credit, which was to be applied first to the portion not guaranteed.

Related posts.

“Collection” Vs. “Payment” Guaranties: Dearth Of Indiana Law

Employee/Guarantor Of Equipment Supply Contract Pays Price For Bankrupt Employer’s Default
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I frequently represent lenders and guarantors in loan enforcement actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.