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Bank Entitled to Pursue Claim for Longer Statute of Limitations on Loan

Under Alabama law, the statute of limitations for an “open account” is shorter (3 years) than for an “account stated” or breach of contract claim (6 years). In Cadence Bank, N.A. v. Robertson, No. 1190997, 2021 WL 1230165 (Ala. Apr. 2, 2021), the Alabama Supreme Court reversed a trial court for granting summary judgment in a collection action by a bank against a homeowner because the longer statute of limitations may apply even if the written loan agreement may no longer be in effect. In 2003, the Robertsons executed a loan agreement with a lender to obtain a home-equity line of credit, and granted the lender a mortgage on their house as security. In 2005, the Robertsons delivered payment to the lender on the remaining balance of the loan along with a “kill letter” which instructed the lender to release the mortgage and cancel their line of credit. Yet, later that year, the Robertsons began borrowing additional funds against the line of credit and continued to do so until 2013. In the interim, Cadence Bank acquired the lender and all of its assets and liabilities.

In December 2018, Cadence sued the Robertsons, seeking a money judgment for the funds the Robertsons owed as a result of the additional borrowed funds. The Robertsons moved for summary judgment, arguing that Cadence’s claim for a money judgment was necessarily based on a theory of “open account,” which accrued no later than 2013 and therefore was untimely. In response, Cadence argued that it had not limited itself to an open account theory and could pursue recovery on an “account stated” or breach of contract theory. Nevertheless, the trial court granted summary judgment.

On appeal, the Alabama Supreme Court reversed, holding that Robertsons’ motion for summary judgment—which was premised entirely on its statute of limitation argument—did not establish that Cadence could proceed only under an open account theory of liability. Rather, the Court noted that in its complaint, Cadence did not specify a particular theory of recovery, whether open account, account stated, or any other theory. Accordingly, the Court held that Cadence, as plaintiff and “master of its complaint,” could proceed under the theory of liability of its choosing. The Court rejected the Robertsons’ argument that Cadence was limited an open account claim merely because it had alleged that it “lent” the money it sought to recover. Instead, the Court, after quoting Black’s Law Dictionary’s definition of “open account,” held that an unpaid loan can, depending on the circumstances, support several theories of liability, including open account, account stated, and breach of contract.

For banks, it would seem that this issue (which cause of action applies on a loan collection) should rarely arise.  In most cases, the bank should have an existing, written loan agreement and therefore should be entitled to a six year statute of limitations.  Still, in the modern economy, there are new financial products and nonbanks who may find themselves in similar situations. This decision may give those lenders more time to find a solution for overdue loans; however, lenders should beware since the Court merely reversed a defendant’s summary judgment rather than granting judgment to the bank.