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The Appellate Court of Illinois, First District, recently held that a credit card agreement was an unwritten contract subject to Illinois’ five-year statute of limitations, rather than its 10-year statute of limitations. Portfolio Acquisitions, L.L.C. v. Feltman, No. 1-07-3004, 2009 WL 1444791, at *8 (Ill. App. Ct. May 20, 2009).

In Portfolio Acquisitions, a debt buyer sued a consumer in 2005 for a credit card debt charged off in 1999. The debt buyer’s second amended complaint indicated that the consumer applied for a credit card and agreed to pay for amounts charged, but failed to make required payments. The debt buyer attached to the complaint copies of a signed application, cardholder agreements and account statements setting forth the last payment or charge date. The consumer filed a motion to dismiss the complaint, arguing that the debt buyer’s suit was untimely because it was filed after the expiration of the five-year statute of limitations for unwritten contracts. The trial court dismissed the complaint.

The appellate court agreed with the trial court that the suit was time-barred by Illinois’ five year statute of limitations for unwritten contracts and that the 10-year statute of limitations for written contracts did not apply. The court indicated that a contract may be deemed written for purposes of the Illinois statute only if the parties are identified and all essential terms are in writing and ascertainable from the instrument itself without resort to parol evidence. The court found that there was no written contract because parol evidence would be required to show (i) all essential terms and conditions of the contract under consideration, (ii) the relationship of the parties and (iii) the consumer’s receipt and acceptance of the essential terms.

The court stated that the credit card account statements attached to the complaint were not “other evidence of indebtedness” subject to the 10-year statute of limitations because parol evidence would be needed to establish mutual assent, the consumer’s promise to pay and lack of objection to the statements.

Without much explanation, the court also found that the debt buyer could not rely on a “composite document theory” to prove the existence of a writing and the application of the 10-year statute of limitations based on all the documentation provided.

The court did not grant summary judgment for the plaintiff on plaintiff’s federal Fair Debt Collection Practices Act claim for improperly bringing suit. Both the debt buyer and its law firm claimed that their procedures for screening debts supported a bona fide error defense. The appellate court observed that a reasonable jury could find either way and denied plaintiff’s motion.

The Illinois court’s decision follows two earlier federal court cases that reached the same conclusion. See Ramirez v. Palisades Collection, LLC, No. 07-C-3840, slip op., 2008 WL 2512679 (N.D. Ill. June 23, 2008) and Parkis v. Arrow Fin. Servs., LLS, No. 07-C-410, slip op., 2008 WL 94798 (N.D. Ill. Jan. 8, 2008).

Relying on an inapplicable statute of limitations can bar a creditor from collecting and cause a creditor and collector to be subject to direct or vicarious liability under federal, state or local debt collection laws. Accordingly, great care in determining the appropriate statute is essential. Creditors and collectors need to exercise care in analyzing debts. As the Illinois appellate court noted, modern business methods present a variety of contracting methods such as telephone solicitation, electronic signatures, pre-approved offers and the like. State statutes do not always reflect the realities of the market place. A contract may be evidenced by one or more writings but not constitute a “written contract” for statute of limitations purposes. Even when deemed a “written contact” in an original creditors hands, a contact may lose that character in a subsequent holder’s hands, diminishing the debt’s value.

  • Mike Tomkies and Chuck Gall