Avoiding the Bar of the Statute of Limitations Using the Debtor’s Actions or Statements Against It

Under Tennessee law, many claims arising from business disputes are barred if they are not filed with a court within four years (claims related to the sale of goods under the UCC) or six years (breach of contract claims not governed by the UCC).  Those time periods begin to run, in almost all cases, not when the contract or agreement at issue was made, but when the plaintiff’s cause of action “accrued.” When a cause of action accrues varies. For most breach of contract cases not governed by the UCC, a cause of action accrues when the defendant materially breaches the contract by failing to render some performance it was supposed to render.

Even when a plaintiff files its lawsuit later than four or six years from when its cause of action accrued, nevertheless, its claims may survive the bar of the statute of limitations based on conduct or statements of the defendant. A relatively recent Tennessee breach of contract case proves that point. Here are the key facts of that case:

  • Defendant owned a business
  • Defendant signed an account application with the Plaintiff for the Plaintiff to supply products to the Defendant’s business
  • Defendant personally guaranteed the obligations of his company to the Plaintiff
  • Defendant’s company when out of business owing money to the Plaintiff
  • The Plaintiff’s claim for breach of contract against the Defendant was governed by a four-year statute of limitations
  • It was undisputed by the parties that the Plaintiff’s claims accrued by October 5, 2012, or, no later than October 15, 2012
  • The Defendant argued, and both the Trial Court and Court of Appeals of Tennessee assumed for the sake of argument, that Plaintiff did not file its lawsuit until February of 2017 —- more than four years after Plaintiff’s claims had accrued
  • A representative of the law firm which represented the Plaintiff testified that, in July of 2013, the Defendant had communicated with it at which time he acknowledged the debt and promised to pay it from the proceeds he expected to receive in the future from a real estate transaction
  • On August 13, 2013, the same law firm’s records reflected that Defendant had told it that he had no money to pay the debt
  • The law firm’s records reflected that, on July 24, 2014, Defendant told it that he would not pay the debt

The Plaintiff argued that the Defendant’s statements in July of 2013 prevented the statute of limitations from barring its claim. The Defendant argued that his statements did not have that effect and that, if they did toll or otherwise affect the statute of limitations, the statute began running again in August of 2013 when he told the Plaintiff’s law firm that he had no money to pay the debt.

The opinion contains a helpful analysis of prior relevant Tennessee law as well as a concise discussion of the difference between two of the theories which can be used to defeat a statute of limitations argument — estoppel and revival. Estoppel occurs where the debtor’s conduct induces a plaintiff to refrain from filing suit during the period that the statute of limitations has not yet barred the plaintiff’s claims. Revival occurs when a claim which has been barred by the statute of limitations is revived by the debtor’s promise to pay the debt.

Where a plaintiff proves estoppel, it must file suit within a reasonable period after it becomes aware that the debtor will not pay the debt. Where a plaintiff proves revival, it must file suit within the applicable statute of limitations period measured from the date of the conduct amounting to the revival.

In reaching its decision, the Court relied heavily on an opinion of the Supreme Court of Tennessee in Graves v. Sawyer (1979). In Graves, the defendant had made voluntary payments of interest on a note. In deciding that case, the Supreme Court stated that, implicit in the payments made by the defendant in that case, was an express promise to pay the debt. The Graves Court then held that, when a defendant makes a promise to pay, the statute of limitations begins to run anew from the date of that promise.

Applying the reasoning in Graves, the Court in our case held that the four-year statute of limitations began to run anew from July of 2013 — the date the Defendant promised to pay the debt. Thus, the Plaintiff had four years from that date to file its lawsuit, which it did. Resultingly, the Plaintiff’s claims were not barred by the statute of limitations.

For Tennessee lawyers handling breach of contract cases where a defendant’s conduct may have some effect on a statute of limitations defense, this opinion is a good starting point.

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