Commercial Division Blog
Posted: October 25, 2018 / Categories Commercial, Statute of Limitations/Laches
Recognition of Alleged Loans on Partnership Books Raises Issues of Fact Regarding Statute of Limitations Precluding Dismissal
On October 3, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Emil LLC v. Jacobson, 2018 NY Slip Op. 32529(U), holding that recognition of alleged loans on a partnership's books raised issues of fact regarding the statute of limitations for not repaying the loans, precluding dismissal, explaining:
Loans which have no stated maturity date are payable on demand. The statute of limitations for a demand loan is six years from the date the loan was made. To extend the limitations period, an acknowledgement must meet the requirements of New York General Obligations Law §17-101, which provides: "An acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations . . . ."
The rule is well settled that where a creditor has several claims, against which the statute has run, then the acknowledgment or promise in the writing must indicate the particular claim to which it refers; that a general acknowledgment of an indebtedness, there being several claims, is insufficient. However, in determining the effectiveness of an acknowledgment, the critical determination is whether the acknowledgment imports an intention to pay.
Defendants rely principally on Moore v. Candlewood Holdings, Inc. There, plaintiff commenced suit in 2007 to collect on a demand loan made in 1997 evidenced by a promissory note. The Court held plaintiffs claim barred by the six-year statute of limitations despite plaintiff's assertion that the limitations period was extended by defendant's 2000, 2002, and 2004 tax returns, each of which contained a line stating outstanding loans from shareholders and providing a general amount that purportedly included the amount owing on the promissory note at issue. However, the Court determined that the reason the tax returns were insufficient to restart the statute of limitations period was because the total amount listed for loans from shareholders on the 2004 tax return was less than what defendant owed to plaintiff under the promissory note at that time. This was inconsistent with plaintiff's position that the relevant tax returns acknowledged the Promissory Note.
Here, Emil made two $250,000 demand loans to the Partnership in 1991 and 2007, respectively. After the 2007 loan was made, the Partnership's books and records reflected that the total amount of"Loans Payable Partners" was in the principal amount of $2,319,297.75. This principal amount appears in unsigned Partnership financial statements at least as recently as 2010. The Partnership's 2011 tax return contains a single line entry for "loans payable - partners" which states the same principal amount of $2,319,298. Notably, the 2011 tax return was prepared by the Partnership's accountant, Defendant Rosenberg & Chesnov CP As LLP, and is dated April 12, 2012-within six years of the commencement of this action. The Partnership's accounting statements from this period, also prepared by Rosenberg, indicate that the $2,319,298 principal in outstanding loans contains the two $250,000 loans Emil made in 1991 and 2007.
Unlike in Moore, which dismissed plaintiff's claims on summary judgment following discovery, Plaintiff here has submitted evidence tending to show recognition of a consistent amount owed to Emil and the other partners. The Partnership's accountant prepared accounting statements and tax returns over a period of years-some prepared within six years of commencement of this action-showing that Emil made two $250,000 loans to the Partnership in 1991 and 2007. The principal amount of all outstanding loans payable to partners remained consistent for many years and may, for purposes of this pre-answer motion to dismiss, evince the Partnership's intent to repay the debt.
At this juncture, it cannot be determined whether the entries in the tax returns and financial statements describing the loan constituted an acknowledgment of the debt sufficient to revive or toll the statute of limitations, or evince an intent to pay it. The near yearly recognition of Emil's loans in financial statements and tax returns-at least some of which were dated within the limitations period-is sufficient, for now, to permit discovery into the issue of the Partnership's intent to repay the purported loans. Therefore, the Court denies the motion to dismiss the third, fourth, and fifth causes of action, without prejudice to renew the statute of limitations issue upon the conclusion of discovery.
(Internal quotations and citations omitted).
It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at firstname.lastname@example.org if you or a client have questions regarding whether claims are barred by the statute of limitations.