A few days ago, the Indiana Court of Appeals issued an opinion in Imbody v. Fifth Third Bank that I’m having trouble following. The decision had to do with whether suit was filed within the six year statute of limitations. The court was clear enough about why it believed the cause of action accrued when it did, but after the cause accrued, the debtor made some payments toward the debt and the court was not clear, in my opinion, about why the statute wasn’t tolled when those payments were made.
Imbody had a loan secured by a truck. Imbody defaulted on the payments, the Bank seized his truck, sold it at auction for less than the remaining debt and claimed a deficiency balance of about $15,000. Imbody made some payments toward the deficiency for awhile but then stopped.
At issue was whether the Bank filed suit within the six year statute of limitations. That issue turned, in part (or I believe it should have only been part of the analysis), on when the Bank’s cause of action accrued. The time line went like this:
7/23/2004 – Note signed
5/3/2006 – Default on loan agreement.
5/31/2006 – Truck repossessed.
?/?/2006 – Truck auctioned, deficiency remains
2/29/2008 – Last payment toward deficiency.
6/5/2012 – Complaint filed by Bank against Imbody.
After a trial, the trial court entered judgment against Imbody and in favor of the Bank. On appeal, however, the Court of Appeals said that the Bank had filed suit after the statute of limitations had run. The loan agreement had a provision saying that, if the debtor missed payments, the Bank wasn’t obligated to wait around for years for payments to become due and owing on the same schedule as if payments were continuing. Rather, it had an option to accelerate the entire note — in other words, the remaining balance comes due at once. However, the Bank wasn’t obligated to accelerate the note. Obligated or not, the Court stated that the act of repossessing the truck constituted an acceleration. Fair enough. That makes cause of action accrue on May 31, 2006. June 5, 2012 is more than six years later and, had nothing else happened, outside of the statute.
The general rule, however, is that when a debtor is making payments, the statute is tolled. Why make a creditor go to court if the debtor is making payments that are acceptable to the creditor? After the truck was sold and a deficiency balance of around $15,000 was established, Imbody made 14 payments of $100 per month through February 29, 2008. If the clock doesn’t start running until 2008, then the Bank is within the 6 year window.
In Clark v. University of Evansville, 784 N.E.2d 942 (Ind. Ct. App. 2003), the Court of Appeals said:
In construing the provisions of this statute, we have held that partial payment of a debt may constitute “an admission of continued indebtedness” which “remove[s] the bar of the statute.” Meehan v. Meehan’s Estate, 98 Ind.App. 9, 14, 186 N.E. 908, 909 (1933). In Meehan we also stated that such a partial payment must be “accompanied by circumstances or evidence amounting to an unqualified acknowledgment of more being due, from which a promise may be inferred as a matter of fact and not as a matter of law, to pay the remainder.”
The Court of Appeals in the Imbody case said, “the evidence shows that the parties had an informal agreement regarding payments on the deficiency balance. There is no evidence that the parties entered into a forbearance agreement.” If there is a requirement that a forbearance agreement be entered into for the statute to be tolled, the Court of Appeals does not cite the basis of that requirement. The Clark case suggests that it’s only necessary that there be evidence amounting to an unqualified acknowledgement of more being due from which a promise may be inferred as a matter of fact to pay the remainder. The informal agreement noted by the Court of Appeals seems to satisfy that and, in any event, the finding of fact would be the province of the trial court which found for the Bank.
So, I don’t know if I am missing something obvious on this one or if the Court of Appeals whiffed on the tolling issue. Hopefully the Court of Appeals will reconsider or the Supreme Court will review this case. Because I’d hate to have to drag a bunch of debtors into court to preserve a claim even where they are making payments that are acceptable to the creditor.
In less than a month after the check bounced, the creditor swoops in, repossesses the truck and sells a 2004 truck in 2006 for a $14,986.32 loss?
Remind me never to buy a Chevy or to use Fifth Third. Did they even try to sell the truck for fair market value, or are Chevys overpriced pieces of junk the values of which plummet like a stone?
Fifth Third wanted $24,490, plus attorney’s fees? That’s nasty.
Good for the court. In America, we have a consolidated bench, and it looks like the court may have done a little equity here. Collection attorneys have been under the eye of the Indiana Appellate bench, for a while.
“The general rule, however, is that when a debtor is making payments, the statute is tolled.”
The court might be saying that this is a debtor’s rule.
You want this guy making payments forever on a truck he no longer was able to drive? If Fifth Third would have let him retain the use of the truck, this case might have turned out differently. Glad to see this creditor wasn’t able to get away with murder using double- and triple-dipping.
The creditor took the truck back and sold it. Close the books.
Good decision.
By the way, the “general rule” is that secured bondholders stand in line before unsecured interests, but you didn’t support Mourdock in his application of the “general rule.”
There was no available deal where the Chrysler secured debtors would have received more, and the money received by holders of unsecured debt was for consideration other than the unsecured debt.
As for Fifth Third losing a couple thousand bucks, I’m not going to get too upset. If they moved to repo the truck in 30 days, they could bring a lawsuit against the debtor within 2 or 3 years instead of 6. But, if the court was deciding based on the equities of the case, and explanation to that effect would be useful so that other creditors and debtors aren’t adversely affected — remember, the incentive this creates is for creditors to sue more and resolve things out of court less.
It might rather create the incentive not to repo the truck, in the first place. People are starting to realize that all this financed money is created from nothing, though the debtors must trade actual sweat and toil to retire the apparition.
So sue more, and let’s get it out in the open how a brand new truck loses $15,000 of value in 18 months.
In fact, let’s have open discussions about many of these financing schemes.
Actually, this decision probably won’t result in many more lawsuits, since almost all of these consumer financing contracts contain an ADR clause.
“General rules” are general rules, not absolute rules. In the Chrysler bankruptcy, someone was going to take a haircut and, due to special circumstances, i.e., saving the rusting Midwest from turning into an economic disaster zone, the secured creditors took the biggest hit. Given the choice between an existing Kokomo and Richard Mourdock’s pension fund taking a hit or Mourdock’s pension fund being pristine and Kokomo being a smoking hole in the ground, I’ll take the former.
That litigation alone proved what a dimwit Mourdock is