Under Alabama law, the statute of limitations for an “open account” is shorter (3 years) than for a “stated account” or breach of contract claim (6 years). In Cadence Bank, NA v. Robertson, No. 1190997, 2021 WL 1230165 (Ala. April 2, 2021), the Alabama Supreme Court overturned a trial court for issuing summary judgment in a collection action by a bank against a landlord because the delay longer statute of limitations may apply even though the written loan agreement may no longer be in effect. In 2003, the Robertsons signed a loan agreement with a lender for a home equity line of credit and gave the lender a mortgage on their home as security. In 2005, the Robertsons gave the lender the loan balance payment along with a “stop letter” that ordered the lender to release the mortgage and cancel their line of credit. Yet later that year the Robertsons began borrowing additional funds from the line of credit and continued to do so until 2013. In the meantime, Cadence Bank acquired the lender and all of its assets and liabilities. .
In December 2018, Cadence sued the Robertsons, seeking a monetary judgment for funds the Robertsons owed due to the additional borrowed funds. The Robertsons sought summary judgment, arguing that Cadence’s claim for pecuniary judgment was necessarily based on an “open account” theory, which accumulated no later than 2013 and was therefore not timely. In response, Cadence argued that it did not limit itself to an open account theory and could pursue collection on the basis of a “stated account” or breach of contract theory. Nevertheless, the court of first instance issued a summary judgment.
On appeal, the Alabama Supreme Court reversed, finding that Robertsons’ motion for summary judgment – which rested entirely on his limitation argument – failed to establish that Cadence could only proceed on a theory of limitation. open account liability. On the contrary, the Court noted that in its complaint, Cadence did not specify a particular theory of collection, whether it is an open account, a declared account or any other theory. Accordingly, the Court concluded that Cadence, as plaintiff and “master of its complaint”, could proceed on whatever theory of liability it chose. The court rejected the Robertsons’ argument that Cadence was limited to applying for an open account simply because it alleged that it had “loaned” the money it sought to recover. Instead, the Court, after citing the Black’s Law Dictionary definition of “open account”, held that an unpaid loan may, depending on the circumstances, support several theories of liability, including open account, the declared account and the breach of contract.
For banks, it would seem that this problem (which cause of action applies to a credit recovery) should rarely arise. In most cases, the bank must have a written loan agreement and therefore must be entitled to a six-year limitation period. Yet in the modern economy there are new financial products and non-bank companies that can find themselves in similar situations. This decision may give these lenders more time to find a solution to the delinquent loans; however, lenders should be wary since the court simply reversed a defendant’s summary judgment rather than giving judgment to the bank.