Debt Acknowledgment: Going Beyond Limitations
Anyone considering bringing a lawsuit needs to be aware of the relevant statute of limitations applicable to one’s case. A statute of limitations establishes a hard deadline by which a particular suit must be brought, which, if missed, bars the potential plaintiff from bring it.
Generally speaking, in the context of a debt collection contract claim, the applicable statute of limitations sets a four (4) year deadline to bring suit after a breach of contract. This limitations period is set by 42 Pa.C.S.A. Section 5525(a)(1). A breach of contract occurs upon non-performance of a contractual duty, which, in this case, would be the non-payment of a debt.
Although the four-year statute of limitations identified above serves as a hard deadline in most debt collection cases, there is an important exception to this statute which serves to extend the time to bring suit and/or serve to toll the statute of limitations: the so-called “acknowledgement doctrine.”
Pennsylvania law has well established the acknowledgement doctrine. The doctrine states that “[a] clear, distinct and unequivocal acknowledgement of a debt as an existing obligation, such as is consistent with a promise to pay, is sufficient to toll the statute.” In Re David Cutler Industries, Ltd., 502 B.R. 58 (2013)
The acknowledgement doctrine in practice serves to restart the running of the applicable statute of limitations cited above, which would begin upon a reasonable elapse of time from the date of acknowledgement.
For example, if the statute of limitations for the failure to pay a debt is set to expire on August 1, 2015, a debtor’s acknowledging the debt on July 25, 2015 would serve to toll the statute of limitations and reset the hard deadline set by the statute to four years after a reasonable elapse of time from July 25, 2015. A debt customarily must be paid within thirty days of when it comes due; therefore, the new statute of limitations in the example above would be four years from August 25, 2015.
When litigating a breach of contract claim, particularly a debt collection matter, and a statute of limitations deadline is approaching, or has passed, practitioners would be wise to explore the possibility of trying to have the debtor acknowledged the debt at some point. Doing so could serve to save the viability of a case and go a long way to ensuring the debt owed is paid.
For more information on the issues addressed above, be sure to also review these cases: Colonial Assur. Co. v. Mercantile and General Reinsurance Co. Ltd., 297 F.Supp.2d 764 (2003); Huntingdon Fin. Corp. v. Newtown Artesian Water Co., 442 Pa.Super. 406 (1995); Camenisch v. Allen, 158 Pa.Super. 174 (1945); In Re Maniatakis’ Estate, 258 Pa. 11 (1917).
Originally published in The Legal Intelligencer Blog on July 21, 2015 and can be seen here.