Where a sales contract contained a one-year limitations period for related causes of action, and the CEO of a party allegedly signed a document in which he admitted his company’s obligations under the contract and agreed to make monthly payments, those actions restarted the limitations period for claims, a federal trial court has ruled.
Judge Michael Urbanski of the Western District of Virginia rejected the defendant’s argument that Virginia’s limitations statute concerning the effect of a new promise in writing affected only the statute of limitations, not the contractual limitations period.
“[T]he accrual of a right of action on a contract is governed by § 8.01-229(G), regardless of whether the limitations period is set by a statute of limitations or by contract,” the judge concluded in denying the defense’s motion to dismiss.
Plaintiff’s counsel declined to comment. Defense counsel did not respond to a request for comment before deadline.
The May 3 opinion is Luna Innovations Inc. v. Kiss Technologies Inc. (VLW 022-3-187).
A promise of payments
Kiss Technologies, Inc., submitted five orders for goods to Luna Innovations, Inc., between December 2017 and May 2019, but it did not pay any of Luna’s invoices.
The terms and conditions accompanying the orders said the contract was governed by Virginia law and contained a limitations period requiring causes of action arising from or related to those terms to be brought within one year after the cause had accrued.
On July 16, 2020, Kiss’s CEO allegedly admitted in a signed writing that his company owed Luna more than $250,000 and promised to make monthly payments. Kiss only made two payments totaling $10,000.
Luna filed suit for breach of contract. Kiss moved to dismiss the claim as time-barred under the one-year contractual limitations period. Kiss also argued that Luna’s alternative theory of recovery for breach of an implied contract should be dismissed because an express contract governed the relationship between them.
According to Virginia law and the Uniform Commercial Code, parties to a contract may agree to a claim limitations period as short as one year, Urbanksi said.
The judge then analyzed Virginia Code § 8.01-229(G), titled “Effect of new promise in writing,” which states that the limitations period for a contract will be restarted if the debtor makes a written promise to pay the amount owed under the contract.
If the promise is made before the applicable limitations period ends, it will be treated as evidence of an existing liability. If the limitations period has already expired, the promise creates a new cause of action. In either event, the promise will set a new limitations date, the judge said.
Kiss argued the statute only applies to statutes of limitations and does not impact a contractual limitations period. In support, it cited two Virginia Supreme Court cases which held that the tolling provision of Virginia’s nonsuit statute did not apply to contractual limitations.
But Urbanski found that the “statute” language central to those cases is not found in the new promise statute, which is an “accrual provision,” rather than a “tolling provision” like the nonsuit statute.
“Nothing in the text of [the new promise statute] limits its application to statutes of limitations, as opposed to contractual limitations periods,” he said.
Urbanski concluded that Luna’s right of action accrued on the date of Kiss’ new written promise and that the suit was filed within one year of the new limitations date.
Luna claimed in the alternative that Kiss breached an implied contract. Kiss argued that an express contract governed the parties’ relationship and moved to dismiss the alternative claim.
Although an express contract “necessarily precludes the existence of an implied contract of a different nature containing the same subject matter,” Urbanski held that because Kiss had not admitted the existence or validity of an express contract, Luna was permitted to plead in the alternative.
In its answer and affirmative defenses, filed on May 5, 2022, Kiss admitted receiving the invoices but denied they owed any money because (1) the goods allegedly couldn’t be used for the purposes they were purchased for and (2) Kiss had repeatedly offer to return the goods.
Kiss also denied the allegation that its CEO “made an unqualified and direct admission to Luna” that it owed or promised to pay the alleged debt. It admitted to only making two payments, but denied owing nearly $250,000 to Luna.
In addition to statutory and contractual limitations periods, Kiss asserted several defenses, including failure of consideration, setoff, fraudulent inducement, and mandatory arbitration.
Jennifer O. Schiffer, a business attorney at Bean, Kinney & Korman in Arlington, said the Kiss opinion underscores the importance of considering all legal and business ramifications before putting anything in writing, even after the parties have a contract.
Schiffer said she will continue to caution her clients that any written offer, if accepted, can legally bind them or even modify an existing contract.