Statute of Limitations and Installment Contracts: What is the Date of Breach and When Does the Limitations Period Start to Run – An IL Case Note

The statute of limitations defense and the equitable doctrine of laches are firmly-entrenched legal devices aimed at fostering finality in litigation.  The limitations and laches defenses both look to the length of time a plaintiff took to file suit and strive to balance a plaintiff’s right to have his claim heard on the merits with a defendant’s competing right to timely defend a lawsuit.

The inherent tension between the goals advanced by the limitations and laches defenses and the legal principle that everyone should have his or her day in court comes into sharp relief in cases involving multi-year contracts that are to be performed over time like a contract payable in annual installments.

Akhtert v. D’avis, 2013 IL App(1st) 113556-U, serves as a recent example of how difficult it can be to apply the statute of limitations and laches defenses where an oral contract doesn’t provide a clear end date and where it calls for yearly installment payments.

The oral agreement there provided that the defendant would use plaintiff’s medical facility to treat defendant’s patients in exchange for paying plaintiff between 40-50% of defendant’s gross income.  The defendant made monthly payments for about two years (from 2002-2004) and stopped.

The plaintiff didn’t sue until nearly seven years later (in 2011) and sought several years’ worth of payments it claimed it was owed by the defendant.  The defendant moved to dismiss plaintiff’s breach of contract claim on statute of limitations grounds and sought dismissal of plaintiff’s accounting action based on laches.  The trial court dismissed plaintiff’s claims as untimely and plaintiff appealed.

Held: Reversed in part.

Q: Why?

A: The court first held that the plaintiff’s breach of contract was timely as to all payments due within five years of the complaint’s 2011 filing date.

The statute of limitations for oral contracts in Illinois is five years, measured from the date where a creditor can legally demand payment from a debtor. 735 ILCS 13-205, (¶14).  Where a money obligation is payable in installments, the limitations period begins to run against each installment on the date the installment becomes due.  Each installment carries its own limitations period.

So, if you have a 2000 oral contract calling for annual payments starting in 2001 and wait until August 31, 2015 to sue, the suit will still be timely as to payments coming due within five years of the filing date (e.g. for all payments due on or after August 31, 2010).

Here, the court found the plaintiff’s suit was timely as to payments coming due on or after March 8, 2006 – five years preceding the 2011 complaint filing date.  Any payments due before March 8, 2006 were time-barred.

Next, the court addressed the defendant’s laches argument – asserted as a defense to plaintiff’s equitable accounting claim.  Laches is a “neglect or omission to assert a right, taken in conjunction with a lapse of time of more or less duration, and other circumstances causing prejudice to an adverse party” and applies where a plaintiff is seeking equitable (as opposed to legal or monetary relief). (¶ 25).

Laches applies where (1) a plaintiff files suit, (2) the plaintiff delays in filing the suit despite having notice of the existence of his claim, (3) the defendant lacks knowledge or notice of the existence of plaintiff’s claim, and (4) injury or prejudice resulting to the defendant by the plaintiff’s delay in filing suit.  Where the period of delay in bringing suit exceeds the applicable limitations period (here – the five-year period for breach of oral contracts), that delay will automatically constitutes laches.

The burden of showing laches is squarely on the defendant.  The mere lapse of time (between plaintiff’s knowledge of facts giving rise to a claim and plaintiff’s filing suit) isn’t enough.  The defendant must also show prejudice: that it is unfair to make him defend plaintiff’s delayed suit.

Here, the defendant couldn’t establish any unfairness in having to defend against plaintiff’s claims so it’s laches claim failed as to payments due within five years of the complaint filing date.

Take-aways:

Contracts payable in installments provide a separate limitations period for each breach;

An oral installment contract claim will be timely as to any payments pre-dating complaint date by five years;

Laches requires more than passage of time/delay between when a plaintiff is first armed with facts giving him a claim and when he actually files suit.  A defendant must also show prejudice – such as inability to track down witnesses and documents – in his ability to mount a defense based on the plaintiff’s lag time in bringing a claim to state a winning laches defense.

 

 

Rule 103(b): Plaintiff’s Year-Long Delay In Serving Lawsuit Merits Dismissal For Lack of Diligence – IL 1st Dist.

Illinois Supreme Court Rule 103(b) requires a plaintiff to exercise diligence in serving a defendant.  The rule is based on the principle that litigation should have an end-date and not languish.  Rule 103(b) also heightens the probability that suits will be resolved when the underlying facts are fresh in the minds of the parties and witnesses and lessens the chance that trials will be tainted by stale evidence or faded memories.

Mular v. Ingram, 2015 IL App (1st) 142439 serves as a recent and harsh example of a plaintiff failing to actively find and sue a defendant.

The plaintiff was injured at the defendant’s home in July 2010 and sued in July 2012 – just before the two-year statute of limitations period for personal injuries ran.  735 ILCS 5/13-202 (two-year limitations period for personal injuries).  Over the next several months, the plaintiff issued multiple summonses to the wrong address.  The case was also dismissed for want of prosecution (DWPd) for several weeks before being reinstated by the plaintiff.  Almost three years from the occurrence and a full 1/2 year after the limitations period expired, plaintiff finally served the defendant.

The trial court dismissed the plaintiff’s suit with prejudice for lack of diligence in serving the defendant under SCR 103(b).

Holding: Affirmed

Rules/Reasons:

Rule 103(b) aims to protect a defendant from unnecessary delay in service of process.  The rule is designed to give a defendant a fair opportunity to investigate the nature of a plaintiff’s claims.  The rule doesn’t specify a specific amount of time for a defendant to be served and the trial court has wide discretion in considering a Rule 103(b) motion.

Once a defendant makes an initial showing that the plaintiff was not diligent in serving him, the burden shifts to the plaintiff to refute this.  The reasonable diligence standard is an objective one and the court does not consider whether the plaintiff intentionally delayed service.  While the defendant isn’t required to prove he was prejudiced by the delay, prejudice to the defendant is still a factor considered by the court.

Multiple factors guide the court’s analysis on a Rule 103(b) motion.  These include: (i) the length of time it took to serve the defendant; (ii) plaintiff’s efforts to obtain service; (iii) whether plaintiff knew of defendant’s whereabouts; (iv) whether the defendant’s whereabouts  could be easily obtained; (v) whether defendant was actually aware of the suit; (vi) whether the defendant was actually served; and (vii) any special circumstances that justify a service delay.

While the time period during which a case is voluntarily dismissed (non-suited) by a plaintiff is not calculated when assessing whether a plaintiff was reasonably diligent in obtaining service, the time where a case is involuntarily dismissed (such as a DWP) is included in the reasonable diligence calculus.

Where a plaintiff isn’t diligent but the defendant is still served before the statute of limitations period runs out, a Rule 103(b) motion can be granted without prejudice.  Where the defendant is served after the statute runs, the plaintiff’s case can be dismissed with prejudice.

(¶¶ 22-24).

Under these guideposts, the court found the plaintiff exhibited a lack of diligence.  She repeatedly put wrong addresses on multiple summonses when her own complaint correctly listed the defendant’s address.  The plaintiff also didn’t serve the defendant until nearly three years after the underlying incident and a year after the personal injury limitations period ran.  In addition, the plaintiff’s case was DWPd for over five weeks during the time preceding service on the defendant.

The plaintiff’s argument that the four-year statute of limitations for construction-related claims (735 ILCS 13-214) also failed.  The construction negligence statute only applies to activities related to the “design, planning, supervision, observation or management of a construction project.”  Defendant fit none of these categories; she was a landowner only.  With no complaint allegations that the defendant participated in the construction or design of a home, the plaintiff couldn’t rely on the four-year limitations period to sustain her claim.

Take-aways:

There’s no chronological litmus test for determining whether a plaintiff was reasonably diligent in getting service.  Where a defendant’s location is no mystery and several months elapse from suit to service, the plaintiff runs the risk of having his case dismissed.  This is especially true if the defendant isn’t served with the lawsuit until after the applicable statute of limitations expires.

The other lesson from the case is that the two-year, not the four-year, limitations period governs personal injury suits against landowners.  If the landowner defendant wasn’t involved in the construction or design of the accident site, he won’t be subject to the longer construction negligence limitations period.

Misnomer, Mistaken Identity and Rule 103(b) – Illinois Standards

The misnomer and mistaken identity doctrines each involve situations where a plaintiff has sued a defendant too late.   Misnomer is basically a spelling error. The plaintiff can correct a misspelled defendant’s name at any time, even after judgment.  735 ILCS 5/2-401(b).  

With mistaken identity, the analysis is more intricate: the court applies Code Section 2-616(d) to determine whether the time-barred complaint relates back to the original (timely) filing date. 

In Guiffrida v. Boothy’s Palace Tavern, Inc., 2014 IL App (4th) 131008, the court examines the misnomer and mistaken identity doctrines and Rule 103(b)’s diligence in service rules. There, the plaintiff didn’t serve the right defendant until several weeks after the personal injury limitations period lapsed.  The trial court dismissed the complaint as untimely on and plaintiff appealed.

Held: Affirmed.

Reasons:

In a case of misnomer – a drafting error, basically – the amended complaint that names the proper defendant relates back to the filing date of the original complaint. 

With mistaken identity, Code Section 2-616(d) applies.  The plaintiff must show (1) the original complaint was timely filed;

(2) the person intended to be sued received notice of suit within the time the action might have been brought against him plus the time for service permitted under Supreme Court Rule 103(b);

(3) the person to be sued received notice of the lawsuit and won’t be prejudiced in maintaining a defense to the case;

 (4) that person knew, or should have known, that he was the intended target of the plaintiff’s suit, and

(5) the amended and original complaints both stem from the same transaction or occurrence. 

To determine whether misnomer or mistaken identity applies, the court looks to the plaintiff’s objective manifestation of intent as to whom it meant to sue.  If the person named in a complaint actually exists but has no interest in the lawsuit, mistaken identity applies and the plaintiff must satisfy the Code Section 2-616(d) factors. (¶¶ 36-37). 

Here, mistaken identity applied.  The plaintiff sued the wrong party.   She sued a corporation that actually existed and served that corporation’s registered agent.  But that corporation wasn’t involved in the underlying facts giving rise to the lawsuit.  

Plaintiff didn’t realize she served the wrong corporation and wrong agent until after the limitations period expired.

Supreme Court Rule 103(b) allows a court to dismiss a suit where a plaintiff fails to exercise diligence in serving a defendant. 

The factors a court considers in determining whether a party has been diligent in trying to serve a defendant include

(1) defendant’s actual knowledge of the pending suit;

(2) whether the defendant suffered any prejudice by the late service;

(3) the length of time it takes to obtain service on the defendant;

(4) the plaintiff’s activities and knowledge of defendant’s location;

(5) the ease with which the plaintiff could determine defendant’s location;

(6) any special circumstances that affected plaintiff’s efforts; and

(7) whether the defendant was actually served(¶ 49).

Here, the Court looked to the plaintiff’s pattern of delay and lackadaisical litigation efforts in finding that the target defendant didn’t have notice of plaintiff’s suit within the time contemplated by Rule 103(b).  

The court noted that plaintiff filed suit improperly in Federal court and later sued in the wrong state court venue.  She also named and served the wrong corporate defendant.  Later, after the statute of limitations period expired, plaintiff served the right corporate agent but still sued under the wrong defendant name.

And even though the proper corporate defendant received notice of the suit within 43 days of the expiration of the limitations period, the Court found that, on the whole, plaintiff failed to exercise diligence under Rule 103(b). 

 Take-aways:

This case shows that a court can look at more than just the bare number of days it took to serve a defendant when assessing a plaintiff’s diligence as part of the relation-back inquiry. 

The case especially illustrates the importance of (a) suing the proper corporate defendant, (b) in the proper venue; (c) serving the right defendant before the statute of limitations period ends.