Zhong v. East Broadway Mall, Inc., 9 N.Y.3d 785 (2008)

A written acknowledgment of a debt, made after the statute of limitations has run on the original contract, can revive the debt and restart the statute of limitations period; furthermore, an assignment of a claim by a dissolved corporation to its sole shareholder can relate back to the original claim, avoiding dismissal even after the statute of limitations has expired.

Summary

Zhong, the sole shareholder of Ka Hon Construction, sued East Broadway Mall for breach of contract after the statute of limitations had expired. East Broadway had acknowledged the debt to Ka Hon in writing after the original limitations period. Ka Hon had also been dissolved. The New York Court of Appeals held that East Broadway’s written acknowledgment revived the debt. Additionally, the court found that Zhong’s assignment of the claim from the dissolved corporation to himself related back to the original claim. The court reasoned that dismissing the claim would be unnecessarily formalistic, especially since Zhong, as the sole shareholder, was the real party in interest. This decision emphasizes substance over form where no prejudice exists.

Facts

Ka Hon Construction completed work for East Broadway Mall in 1989. A dispute arose regarding payment. By 1994, the statute of limitations for a breach of contract action had expired. On February 22, 1994, East Broadway provided a written acknowledgment of the debt outstanding to Ka Hon. Ka Hon Construction was dissolved by proclamation on September 28, 1994. A judgment was filed against Ka Hon on January 29, 1996. Zhong, as Ka Hon’s successor-in-interest, initiated a breach of contract action on February 18, 2000.
On September 28, 2001, Zhong obtained a formal assignment of the claim from Ka Hon to himself as an individual.

Procedural History

The trial court’s decision is not specified in the opinion. The Appellate Division reversed the trial court, granting East Broadway’s motion for summary judgment. The Appellate Division determined that the assignment to Zhong was ineffective to cure the defect of the dissolved corporation bringing suit. Zhong appealed to the New York Court of Appeals.

Issue(s)

1. Whether East Broadway’s written acknowledgment of the debt revived the expired statute of limitations for a breach of contract action.
2. Whether the assignment of the claim from the dissolved corporation, Ka Hon, to its sole shareholder, Zhong, after the statute of limitations had expired, was effective to cure the defect in the lawsuit.

Holding

1. Yes, because East Broadway’s February 22, 1994 acknowledgment reflecting the amount of debt “outstanding to Ka Hon” was sufficient to satisfy General Obligations Law § 17-101 and take this “action out of the operation of the provisions of limitations of time for commencing actions”.
2. Yes, because the assignment of the corporation’s claim was simply a less cumbersome way of achieving the same result, avoiding dismissal of what appears to be an otherwise meritorious claim.

Court’s Reasoning

The Court of Appeals reasoned that the written acknowledgment of the debt by East Broadway satisfied the requirements of General Obligations Law § 17-101, which revives a debt barred by the statute of limitations when the debtor acknowledges the debt in writing and indicates an intention to pay. The court cited Lew Morris Demolition Co., Inc. v Board of Educ., 40 NY2d 516, 521 (1976), stating that the writing must “recognize an existing debt and . . . contain nothing inconsistent with an intention on the part of the debtor to pay it.”
Regarding the assignment, the court acknowledged that the cause of action properly belonged to Ka Hon Construction, despite its dissolution. The court emphasized that Zhong was the sole shareholder of Ka Hon and had a good faith belief that all corporate business had been completed. The court reasoned that the assignment was a means to correct the error and prosecute the claim. The court further noted that if the corporation had moved to intervene, it would have been permitted to do so, with its claim relating back to the original claim. The court concluded that the assignment was simply a less cumbersome way of achieving the same result, preventing dismissal of a meritorious claim.