A pair of lawyers from Ballard Spahr have published details about a ruling from the Arizona Supreme Court which “sets a clear date” for how to determine the statute of limitations in the state.
A copy of the ruling in Mertola v. Santos can be accessed by clicking here.
The defendants were sued by the plaintiff over an unpaid credit card debt. The original creditor charged off the debt in 2008, after which it was sold to the plaintiff. The plaintiff filed its breach of contract suit in 2014. A state Superior Court agreed with the defendants and dismissed the suit. The plaintiff appealed the decision and a state Appeals Court reversed the decision.
Arizona has a six year statute of limitations on being able to sue for unpaid debts. The statute of limitations is defined as being within six years after the cause of action accrues, but does not explicitly state what constitutes the cause of action.
The card agreement between the defendants and the original creditor included an acceleration clause, which allowed for the creditor to demand payment of the entire unpaid balance if a payment was missed. The defendants started missing payments in February 2008, and made a $50 payment in August 2008, which was below the minimum payment requested by the creditor and thus not sufficient to cure the default.
In making its ruling, the Supreme Court decided that giving the creditor the right to determine the date in which the cause of action occurs by invoking the acceleration clause, “would vest the creditor with unilateral power to extend the statutory limitation period and permit interest to continue to accrue, long after it is clear that no further payments will be made, subject only to a standard of reasonableness and other equitable doctrines.”
Thus, the Supreme Court ruled that the cause of action starts from the date the “debtor first fails to make a full, agreed-to minimum monthly payment.”
In ruling that the lawsuit filed by the plaintiff is barred because it was filed beyond the six-year window, the court established a “bright-line” test that can be used to determine a “clear accrual date.”