Tag: laches

Six-year Delay in Asking For Earnest Money Back Too Long – IL Court Applies Laches Defense

Earlier this year, an Illinois appeal court examined the equitable defense of laches in an earnest money dispute between two contracting parties and former friends.  Derived from an archaic French word – laschesse – meaning “dilatory,” laches applies where a plaintiff sits on his legal rights to the point where it’s unfair to make a defendant mount a defense to the delayed claim.

The 2005 real estate contract at issue in Gardner v. Dolak, 2016 IL App (3d) 140848-U fell through and at different points in 2009 and 2011, the plaintiff buyer asked for her $55,000 deposit back.  The seller’s exclusive remedy for a buyer breach was retention of the buyer’s earnest money.

The contract also set specific deadlines for the plaintiff to complete a flood plain study and topographical survey.  When the plaintiff failed to meet the deadlines, the sale fell through.  Plaintiff sued when the Defendant refused to refund the earnest money deposit.

After a bench trial, the trial court entered judgment for the seller defendant on the basis that the plaintiff waited too long to sue and the delay in suing prejudiced the defendant.

The appeals court affirmed and sketched the contours of the laches doctrine:

  • Laches is an equitable doctrine that prevents a party from asserting a claim where he unreasonably delayed pursuing the claim and the delay misled or prejudiced his opponent;
  • Laches is based on the principle that courts will not aid a party who has knowingly sat on his rights that could have been asserted earlier;
  • To win a laches defense, the defendant must show (1) plaintiff lacked diligence in presenting his claim, and (2) the plaintiff’s delay resulted in prejudice;
  • The mere passage of time is not enough though; the defendant must show prejudice or hardship on top of the chronological delay;
  • In the context of real estate, wide property value fluctuations that harm the party claiming laches is evidence of prejudice that will support a finding of laches;
  • A party can successfully assert laches where the plaintiff remains passive and the defendant incurs risk, enters into obligations, or makes monetary expenditures.

Agreeing that the evidence supported the laches finding, the appeals court pointed out that plaintiff didn’t notify the defendant she wasn’t going through with the purchase until 6 years after the contract was signed.  During this six years, the value of the property declined markedly and the seller defendant spent considerable funds to maintain the property.

Taken together, the passage of time between contract execution (2005) and plaintiff’s lawsuit (2011) and measurable prejudice (based on the property’s drop in value) to the seller defendant was enough to support the trial court’s laches judgment.

Afterwords:

This case presents a straightforward summary of laches in the real estate context.  The party claiming laches must show more than mere passage of time between the claimed injury and the lawsuit filing date.  He must also demonstrate changed financial position as a result of the lapse of time.

Here, the property’s precipitous drop in value in the six years between contract’s execution and termination was a key factor cementing the court’s laches finding.  The question I had after reading this was what if the value of the property doubled or tripled in the interim 5 years?  Would the defendant still be able to prove laches?  Maybe so but that would be a harder sell.  The defendant would need to show the amount he spent maintaining the property over the six years exceeded the increase in property value.

 

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.