Our client — a successful supplier of kitchen cabinets and appliances — was a subcontractor who did business with a well-known hotel operator for over 13 years. The hotel operator, although slow to pay, always sent a payment when truly pressed. But the payments became few and far between due to economic hardship. Because of the relationship, the client delayed sending the claim for collection. Thankfully, when the debtor produced their payment records, our client was able to identify an on account payment, allowing them to win what appeared to be a “lost” cause for much of the balance owed!
The kitchen supplier had invoices to the hotel operator going back five years. The hotel operator made one small payment two years before but nothing since then. The kitchen supplier filed suit against the hotel operator in 2023 for the balance, believing he had six years to file suit before reaching the statute of limitations for a breach of contract. But the hotel operator filed an answer, asking the court to dismiss the complaint due to the claim being past the statute of limitations.
Looking further into the defense, the supplier found that under the Uniform Commercial Code, contracts for the sale of goods have a four-year statute of limitations. Given that the sales of cabinets and appliances in question occurred five years ago in 2018, the supplier became concerned that their case was past statute.
The supplier then made discovery demands for copies of all payments made by the hotel operator.
The hotel operator provided the supplier with a copy of the payment by check made two years ago in 2021. The payment was for $50.00, and in the check’s memorandum, the hotel operator wrote “payment towards balance.” What the hotel operator didn’t realize was that in making that payment and memorandum, they ensured that the case was within statute for four years beyond the date of the payment. In New York, once a payment is made on an account, the statute of limitations clock is effectively restarted from the date of said payment.
The question then became, “What is a payment on account?”. A payment on account is a payment that is intended towards the total outstanding balance due and not a new specific invoice. The memorandum on the check would either state “payment on account” or “payment to outstanding balance.” Additionally, if the check’s memorandum is left blank, it is assumed that the payment is on account because it is not written to be paid towards a specific invoice.
Since the hotel operator made the payment two years ago in 2021, the supplier was given four years from that payment date to file suit. Therefore, the supplier had until 2025 to file suit against the hotel operator. By filing the case in 2023 the case is properly within the statute of limitations.
Therefore, if payments are made by check or with written memoranda, it is important for creditors to maintain copies of all payments from customers. They may become necessary in order to bring timely claims against customers.
Contact Frank, Frank, Goldstein and Nager if you have a debt collection matter you need assistance with. We have the experience that pays.
