Supreme Court of Indiana Harmonizes Statutes of Limitations for Closed Installment Contracts

In February 2020, the Supreme Court of Indiana issued its decision in Blair v. EMC Mortgage, which harmonizes the Statutes of Limitations (SOLs) for closed installment contracts. 

There are two SOLs governing closed installment contracts.  I.C. 34-11-2-9 is the general SOL for “actions upon promissory notes…or other written contracts for the payment of money.”  This statute requires that an action must be brought within six (6) years after the cause of action accrues.  

Indiana has also adopted the relevant Uniform Commercial Code (UCC) SOL, I.C. 26-1-3.1-118(a), which governs “an action to enforce the obligation of a party to pay a note payable at a definite time.”  This statute requires that an action to enforce a note must be commenced within six (6) years after the due date (maturity date) or within six (6) years after acceleration, whichever is earlier.

In the Blair opinion, the Supreme Court first distinguished closed installment contracts from open accounts.  Closed installment contracts, such as promissory notes and other installment loans, contemplate payment of a certain sum over a fixed period of time.  Credit cards and other open accounts have fluctuating balances and these accounts are kept open indefinitely in anticipation of future transactions.  While prior appellate decisions had focused on the date of default as the proper triggering event for an SOL on both an open account and a closed installment contract, the Blair Court changed the course for closed installment contracts.

The Supreme Court concluded that Indiana’s two applicable SOLs recognize three events triggering the accrual of a cause of action for payment upon a closed installment contract containing an optional acceleration clause:

(1) A lender can sue for a missed payment within six years of a borrower’s default;
(2) A lender can exercise its option to accelerate and must then bring a cause of action within six years of that acceleration date; or
(3) A lender can opt not to accelerate and can then sue for the entire amount owed within six years of the contract’s maturity date.

Blair is a well-written, well-reasoned decision that provides clarity for debtors and creditors on this issue.  Please note that Blair and the subject SOLs do not apply to all debt contracts.  For example, a retail installment contract, which is commonly used in auto financing, is still governed by the four-year limitations period set forth in I.C. 26-1-2-725(1).  Thus, it is important to seek advice from your counsel before making any final determination on the appropriate SOL for a debt instrument in Indiana.  

This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.