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Archive for the category “My Articles: Contract and Debt Collection”

A Collection of Contract and Debt Collection Writings by James W. Cushing, Esquire

Over the course of my career, I have written extensively on a wide variety of contract law issues and debt collection legal principles.  These writings have been published in The Legal IntelligencerUpon Further Review, and The Pennsylvania Family Lawyer as well as posted onto my blog.  I have collected these articles and blog posts and have listed them below.  Thanks for reading!

My Articles:


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.

Acknowledging a Debt to Toll the Statute of Limitations

As every lawyer knows, the statute of limitations is the death knell for any case if the deadline it sets to bring a lawsuit is missed.

Collecting on money owed pursuant to a contract is generally governed by a four (4) year statute of limitations which begins to run upon the breach of that contract. One way to extend that four (4) year statute is to find a way to toll it. The case of In Re Michael Angelo Corry Inn, Inc., 297 B.R. 435 (W.D., PA 2003), provides one innovative way to try and toll it.  Specifically, the Court in the above case analyzed whether acknowledging a debt and promising to repay serves as a way to toll the statute of limitations.

The underlying case involved the filing of a proof of claim by a creditor against a debtor who has filed for bankruptcy. The fact that the context of the case was bankruptcy has no effect or relevance on how the statute of limitations for a contract claim functions and/or applies. The issue was the fact that the creditor did not pursue the alleged debt with any alacrity and many years passed with no action taken on the loan and/or its repayment. The time that elapsed from the potential breach was longer than four (4) years in this case and, therefore, on its face, any action to pursue the contract claim would then be barred by the relevant statute of limitations. In order to avoid the contract claim from being a non-starter due to being barred by the statute of limitations, the creditor attempted to argue that the aforesaid statute is tolled by an acknowledgment of the debt made my the debtor.

The Court agreed that the statute of limitations on contract claims can be tolled if the debtor acknowledges a debt. The caveat, however, is that acknowledgment is more than merely expressing a willingness to pay it.

The acknowledgement doctrine requires a debtor’s acknowledging the existence of, and obligation for, a debt to be clear, distinct, and unequivocal, along with a promise to pay that is similarly doubtless. The Court made it clear that there must be no uncertainty in the debtor’s identification of the specific debt owed, acknowledgment of his own obligation to pay that debt, and a clear promise to pay. A debtor who simply declares an intention or desire to honor his obligation is not considered to have made a promise to pay sufficient to toll the statute of limitations under the acknowledgment doctrine.

So, when litigating a breach of contract claim for an unpaid debt, if one thinks the case can no longer be pursued due to the expiration of the statute of limitations, remember to fully explore the acknowledgement doctrine. It may allow a creditor to successfully pursue a debtor far beyond the four (4) years permitted by the statute of limitations.

Originally published on September 8, 2014 in The Legal Intelligencer Blog and can be found here.

Court Takes Interest in Contract Case

A recent opinion issued by the Supreme Court of Pennsylvania has clarified how interest is to be assessed on the party who breaches a contract in the matter of Truserv Corporation v. Morgan’s Tool&Supply Co., Inc. 39 A.3d 253 (2012).

In the Truserv matter, the two parties entered into a contract which required the Defendant Morgan’s Tool & Supply Co., Inc. to make payments to the Plaintiff Truserv Corporation pursuant to a line of credit. According to the contract, interest would be applied upon Defendant’s default on the payments owed to Plaintiff. There was an open factual question as to the precise rate of interest that would apply, but there was no dispute that the contract applied interest upon defaulting on payments.

Consequent to Defendant’s defaulting on its payments owed to Plaintiff, Plaintiff brought suit against Defendant for breach of contract and related claims. Although Plaintiff filed suit in 1999, between typical delays and, more importantly, Plaintiff’s failure to actively pursue the claim with any dispatch, a trial on the matter did not occur until 2008, nearly nine (9) years later. The trial court found in favor of Plaintiff on the breach of contract but denied its claim for interest on the basis that Plaintiff did not mitigate its damages by artificially increasing the total interest owed by Defendant due to its own inaction in the litigation. Plaintiff appealed and the trial court’s decision was upheld by the Superior Court of Pennsylvania. Plaintiff again appealed, this time to the Supreme Court of Pennsylvania which reversed the decisions in the lower courts. The basis of the Supreme Court of Pennsylvania’s decision is described in the ensuing paragraphs.

The Supreme Court’s analysis included making a distinction between what it called “contractual” interest and “prejudgment” interest. The Supreme Court defined contractual interest as interest specifically mandated by the terms of a contract. As a result, the Court ruled, contractual interest becomes “an integral part of the debt [owed] itself.” Upon its review of applicable case law, the Court ruled that a court has no discretion as to whether to apply contractual interest upon a debt owed. In other words, if the contract mandates the application of interest, then the court must apply it on any debt owed due to the terms of the breached contract. Furthermore, the Court also ruled that it has no authority to, from the bench, change the terms of a contract into which both parties entered. Therefore, if a legitimate and enforceable contract requires interest, then the Court is obliged to enforce it.

The Supreme Court went on to describe prejudgment interest as interest that is, though not expressly in a contract, applied as damages to compensate an aggrieved party for the detention of its money rightfully due to it/him/her. The Court limited the application of prejudgment interest to matters where the amount owed is a definite sum of money per the terms of a contract. This is distinguished from damages incurred as a consequence of the breach as opposed to the money owed due to the default itself pursuant to the terms of the contract. Just as above, the Court ruled that it has no discretion as to whether to apply prejudgment interest; it simply must apply it when any definite sum is owed per the terms of the breached contract.

As described above, the Court ruled that it lacks discretion in the matter as to whether the interest ought to be applied. The Court also went on to rule that a party in Plaintiff’s position has no obligation to mitigate its damages. Defendant argued that the interest claimed by Plaintiff ought to have been reduced as Plaintiff, Defendant averred, artificially allowed the interest to accrue due to its failure to take prompt action in pursuing its claims. The Court specifically ruled that a party – like Plaintiff in the instant matter – has no obligation to mitigate its damages when both it and the breaching party have an equal opportunity to reduce the possible damages. The Court ruled that Defendant could have, at any time, stopped the accrual of interest by simply paying the debt owed to Plaintiff. Indeed, the Court noted that there was precedential authority to suggest that interest under a contract is simply not subject to mitigation at all. As if its rulings above were not clear enough, the Court rather overtly concluded that “a party who breaches a contract containing an express promise to pay interest may not be permitted to reduce or escape entirely his contractual obligation by subsequently arguing that the nonbreaching party did not prosecute its breach of contract claim with dispatch.”

As a relatively minor matter, the Court had to determine whether a so-called “service charge” essentially functioned as interest under the terms of the contract at issue herein. The Court defined a service charge as a charge imposed as an incident to the extension of credit whereas, by contrast, interest is compensation for the use or detention of money. The Court ruled that how the “service charge” functioned in the instant matter was more akin to interest than a service charge regardless of the terms used which appear on the contract.

Based on the above, the Pennsylvania Supreme Court ruled that the decisions of the trial and Superior Court are reversed and Plaintiff is entitled to the full amount of interest as calculated under the contract. Finally, as noted above, there was an open fact question as to what interest rate ought to apply on the amount owed due to Defendant’s breach of contract. The Supreme Court, while reversing the lower courts’ decision on the application of interest, remanded the matter to determine the applicable interest rate.

This article was originally published on July 18, 2012 in “Upon Further Review” and can be found here.

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