New York Law Review

Tag: Acknowledgment of Debt

  • Zhong v. East Broadway Mall, Inc., 9 N.Y.3d 785 (2008): Acknowledgment of Debt and Assignment of Claims

    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.

  • Lew Morris Demolition Co. v. Board of Education, 26 N.Y.2d 517 (1970): Acknowledgment of Debt and Contractual Limitations

    26 N.Y.2d 517 (1970)

    A partial payment tolls a contractual statute of limitations only if it constitutes an unqualified acknowledgment of the entire debt and implies a promise to pay the remainder.

    Summary

    Lew Morris Demolition Co. sued the Board of Education for money owed under a demolition contract. The Board withheld payment due to a pending wrongful death lawsuit related to the work. After the lawsuit concluded, the parties stipulated to a partial settlement, but the plaintiff later sued for the remaining balance. The Board argued the suit was time-barred by a contractual limitation period. The New York Court of Appeals held that the partial settlement did not revive the limitation period because it was not an unqualified acknowledgment of the debt, affirming the dismissal of the suit.

    Facts

    Lew Morris Demolition Co. contracted with the Board of Education to perform demolition work. During the work, an employee of another contractor was injured, leading to a wrongful death suit against Lew Morris, the Board, and the other contractor. The Board filed a cross-claim against Lew Morris for indemnity. The Board withheld payment to Lew Morris due to the pending lawsuit and a contract clause allowing it to withhold funds against claims. In the wrongful death action, Lew Morris was exonerated, but the Board’s cross-claim initially succeeded at trial before being dismissed on appeal. Subsequently, Lew Morris filed a claim for the remaining balance and extra costs. The Board made a partial settlement payment, stipulating it was not a final payment and was without prejudice to either party’s rights.

    Procedural History

    The Civil Court ruled in favor of Lew Morris, finding that the partial settlement revived the one-year contractual limitation period. The Appellate Term reversed, granting summary judgment to the Board, holding that the stipulation wasn’t an acknowledgment of a debt. The Appellate Division affirmed the Appellate Term’s decision.

    Issue(s)

    Whether a partial settlement payment, stipulated as not a final payment and without prejudice to either party’s rights, constitutes a sufficient acknowledgment of the debt to revive a contractual statute of limitations.

    Holding

    No, because the stipulation did not recognize an existing debt with a clear intention to pay the remaining balance; therefore, the contractual limitations period was not tolled.

    Court’s Reasoning

    The Court of Appeals stated that Section 17-101 of the General Obligations Law requires a written acknowledgment of a debt that recognizes an existing debt and contains nothing inconsistent with an intention to pay it. Citing Connecticut Trust & Safe Deposit Co. v. Wead, 172 N.Y. 497, 500, the court emphasized that the writing must recognize an existing debt. Additionally, part payment only tolls the limitation period if it acknowledges more being due and implies a promise to pay the remainder. Citing Crow v. Gleason, 141 N.Y. 489, 493, the court stated that the payment must be “accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.” Because the stipulation stated that the partial payment was “not as a final payment or payment of any character under said contract” and was made “without prejudice to the rights of either party,” it lacked the necessary unqualified acknowledgment and promise to pay. The Court found that the contractual period of limitations began to run when the Court of Appeals made a final adjudication in the wrongful death suit. The action, initiated after the one-year period, was thus time-barred.