Appellate Court Affirms Calculation of Statute of Limitations on Promissory Notes

A promissory note is a contract where a borrower (sometimes called a “Maker”) agrees to pay a lender (sometimes called a “Holder”) a certain amount of money back.  It is essentially a loan contract. 

In Washington, the statute of limitations for a written contract is six years from the time of breach.  That means a lawsuit about a written contract  “shall be commenced within six years” after the cause of action has accrued. RCW 4.16.040(1)RCW 4.16.005.  The promissory note is a written contract subject to the six-year statute of limitations under RCW 4.16.040(1)Edmundson v. Bank of Am., N.A., 194 Wash. App. 920, 927, 378 P.3d 272 (2016).  In the case of a promissory note, the statute of limitations starts, “when the party is entitled to enforce the obligations of the note.” Wash. Fed., Nat'I Ass'n v. Azure Chelan LLC, 195 Wash. App. 644, 663, 382 P.3d 20 (2016).  Once a statute of limitations passes, the right to sue and enforce rights is forever barred. 

In this case, the borrower claimed that the statute of limitations on the promissory note that is supposed to be paid in installments started on the day that the first payment was missed.  The lender claimed that the statute of limitations for this type of promissory note starts running from the last payment that was missed.  The distinction was important because it would impact whether the lender had missed its opportunity to recover. 

The Court of Appeals in this case, reaffirmed an earlier case, Edmundson, and reiterated that “the six-year statute of limitations on an installment promissory note accrues for each monthly installment from the time it becomes due”  They held that this was longstanding precedent which could be traced to a case from 1945, Herzog, which stated “when recovery is sought on an obligation payable by installments, the statute of limitations runs against each installment from the time it becomes due; that is, from the time when an action might be brought to recover it.” Herzog v. Herzog, 23 Wash.2d 382, 161 P.2d 142 (1945)  This means that, on a promissory note, each missed payment has its own statute of limitations that starts on the date that that specific payment was not paid. 

Our firm represents companies and business owners prosecuting claims or defending claims for promissory notes and other types of loans.  We can also draft or advise on loan documents for businesses for private loans, including promissory notes, security agreements and deeds of trust. Please contact our firm with any questions, we will provide a free consultation.