Statute of Limitations in Utility Collection Cases: Protecting Receivables

The Statute of Limitations (SOL) is a law that limits the amount of time to bring a cause of action in a court of law, whether on an account, debt, contract, or property damage claim. The SOL provides that no suit shall be maintained on a cause of action, unless it is brought within a specified period of time.  These are legislative enactments, regardless in what state, that set forth the period within which actions may be brought upon a claim, or a period within which certain rights may be enforced.  If an account is nearing the end of an SOL period, it is important to seek the advice of legal counsel to ensure the claim does not become time-barred.  Failure to file legal action within the SOL will result in the claim being forever barred, and the cause of action will become a permanent loss that can never be recovered.   

Utilities may have several types of causes of action, such as: breach of a written contract, breach of an account stated, breach of oral contract, and property damage claims.¹  Each of these type of claims are governed by its own statute of limitations.  The following is a discussion of each of these types of causes of action, and their corresponding SOLs.

Written Contract:  A written contract is one in which all of its terms are in writing, and signed by both parties.²   It also can be referred to as a formal contract.  Examples of written contracts are contracts with locate companies, contracts with other utilities for re-sale of energy, contracts with vendors, contracts with insurance companies, contracts with sub-contractors, or contracts with large commercial customers.  A breach of contract cause of action is founded upon three elements:  the existence of a valid contract, breach of the contract's terms and damages.³   Examples of breach of written contracts would be a locate company that fails to locate a leak or break; failure of any vendor to perform, failure or refusal of an insurance company to pay a claim, or failure of a customer to pay his bill.

The following is a list of SOLs for breach of contract for written contracts in Weltman's direct representation (footprint) states:

Account Stated:  The cause of action called “An Account Stated” is a monthly statement in writing, of debits and credits, or of receipts and payments, with their respective dates, between the utility and the customer.⁴   The elements of an account stated are: (1) a prior transactions between the parties which establish a debtor-creditor relationship; (2) an express or implied agreement between the parties as to the amount due; and (3) an express or implied promise from the debtor to pay the amount due.⁵  

By a customer initially paying in response to monthly statements on his or her account, and by not objecting to same, a customer admits to the accuracy of the account statement, and a cause of action under the legal theory of account stated is established.  An example of a cause of action for an account stated would be a suit against a residential customer for non-payment of his monthly utility bill. 

If a debtor receives regular statements on an account stated, and does not object in a reasonable time, the debtor has admitted the accuracy of the account.⁶   In Pabst, the Michigan Supreme Court held “[t]hat, if monthly statements are rendered to a debtor, and the statement so rendered is not objected to within a reasonable time, the acquiescence of the debtor is to be taken as an admission that the account is correctly stated.”  The court further reasoned that as the defendant failed to object in a reasonable time, this is an admission that the account statements were correct and accurate, and the account can be sued upon.

This concept is also recognized by the Michigan Supreme Court in Corey v. Jaroch, 229 Mich. 313 (1924).  In this case, the court found that evidence of three monthly statements, each inclusive of the state of the account, by specific items of debit and credit, were sent out and accepted as correct by the defendant. The defendant had no defense thereto and by payments without questioning the correctness thereof confessed his liability. When an account is stated in writing by the creditor and accepted as correct by the debtor, either by payments thereon without demur or by failure within a reasonable time to question the state of the account as presented, it becomes an account stated.

The following are the statutes of limitations for recovery under theory of Account Stated in Weltman's footprint states:

Oral Contract: An oral contract is a contract which is not in writing but is a verbal contract between the parties, or it may have some terms in writing with the rest of the terms being verbal.  Establishing the existence of a contract, not in writing, is a bit more difficult, and requires four initial elements:  an offer, acceptance of that offer, consideration, and a meeting of the minds as to the contract.⁷   An example of an oral contract is when a contractor offers to perform certain work, a utility company agrees to pay for said work, however not all terms of this agreement are reduced to writing.  A breach may occur if the work is not properly performed, or if payment terms are in dispute.

The following are a list of statutes of limitations for breach of contract for oral contracts in Weltman's footprint states:

Property Damage:  Utilities have a cause of action to recover damage to their property, which is founded in tort law.  A tort is the breach of a legal duty which causes some kind of compensable injury or loss to person, property, or rights.⁸   In general, four elements must coincide for an act or omission to constitute a tort on which a lawsuit can be based. These elements are: (1) a legal duty owed by one person to another; (2) violation of the duty; (3) injury or loss to the plaintiff; (4) the violation of the duty is the proximate cause of the injury or loss.⁹  

Examples of causes of action for property damage/tort that a utility may have include when someone hits a pole or a utility vehicle, power theft cases which cause fires or damage to transformers or other equipment, individuals stealing copper which causes the loss of the copper and equipment itself along with power outages to other customers, improper wiring of backup generators which damages utility equipment, and damage to buildings or real estate.

The following is a list of statutes of limitations for causes of action for property damage in our footprint states:

Exceptions to Statutes of Limitation
Discovery Rule:  The Discovery Rule applies in property damage cases.  It stands for the proposition that the Statute of Limitations for a property damage claim can be “tolled” or postponed, until such time as the utility discovers, or, in the exercise of reasonable diligence, could have discovered the negligence of the person, supplier or vendor who caused the damage.¹⁰   An example is when a utility provider  contracts with a supplier to supply a certain grade of electrical wire or cable; the cable is shipped and installed by the utility; work for a period of time, but unbeknownst to the utility, the cable was made with an inferior quality of insulation.  It takes several years for the insulation problem to surface, but it is discovered, and suit is brought as soon as it is discovered.  The supplier then tries to raise an SOL defense.  The utility provider, under the Discovery Rule, can successfully argue that the start of the SOL is postponed, or “tolled,” to the date that the defect in insulation was first discovered.  Another way of saying it is that the SOL does not begin to “run” until the date of discovery of the defect.

Out of Jurisdiction:  In motor vehicle accidents where an out of state driver hits a utility pole and leaves the state, the time period within which to file a claim can be tolled or delayed.  The methods of tolling the three-year Michigan SOL against non-resident drivers are set forth in  MCL § 600.5856, which was enacted to precisely designate at what point the SOL are tolled.  Under MCL. § 600.5856(2), a utility has the option of tolling the statute by means of complying with MCL. § 257.403(a), which states that service of summons against a nonresident, growing out of any accident or collision in which such person may have been involved, may be made upon the Secretary of State as the true and lawful attorney of such person with the same legal force as if served on him personally within this state.¹¹   

Ways to avoid or extend Statute of Limitations
Payment:  Remember that the SOL in a breach of contract (written or oral) or on an account starts from the date the last payment was made, not the date that the contract was entered into, nor the date that the account was originally opened.  The date of the breach is the date of the last payment.  The SOL begins to run from the last date of payment.¹²

Promissory Note:  Another way to extend the SOL on an account that is about to expire, is to have the customer or debtor sign a promissory note.  This tolls, or extends, the SOL for several years, based on whatever the statutory period is in each particular state.  This could be used as a condition that a customer must fulfill before a customer can have their power turned back on after shutoff on another piece of property that is in default.  Or in the case of an uninsured driver, who is also a customer, who has hit a pole and the statute is about to expire, use of a promissory note would extend the SOL.

If you have an account or property damage claim nearing the end of an SOL, it is important to discuss the matter with legal counsel.  For further information, please contact the Weltman Utility Service & Damage Claims Collections Group via email at WWR-Utilities@weltman.com.

1 - This is not an exhaustive list, just some examples for discussion herein.
2 -  Black’s Law Dictionary, 5th Ed., p. 294
3 -  Michigan Pleading and Practice, Callaghan, Section 5.01 et. seq.
4 -  MCL 445.862(a); Corey v. Jaroch, 229 Mich. 313 (1924).
5 - 1 Am. Jur. 2d Accounts & Accounting section 26 (West 2007).
6 -  Pabst Brewing Co. v. Lueders, 107 Mich. 41, 48 (1895)
7 -  Michigan Pleading and Practice, Callaghan, Section 36.624.
8 -  Michigan Civil Jurisprudence, Torts, Section 2.
9 -  Id.
10 - Black’s Law Dictionary, 5th Ed., p. 419.
11 - McMAHILL v. MacLEAN, 20 Mich. App. 148; 173 N.W.2d 749; (1969) Mich. App. LEXIS 802
12 - Yeiter v. Knights of St. Casimir Aid Soc'y 461 Mich 493; 607 NW2d 68 (2000).