O'Neil v. Estate of Murtha

• Decision Date: 08 December 1997
• Docket Number: No. 39895-4-I,39895-4-I
• Citation: 947 P.2d 1252,89 Wn.App. 67
• Court: Washington Court of Appeals
• Parties: Terrance W. O'NEIL, Respondent, v. ESTATE OF Terri L. MURTHA, Deceased, and Donald J. Murtha, in his capacity as Executor of the Estate of Terri L. Murtha, Appellants.

Page 67

89 Wn.App. 67

947 P.2d 1252

Terrance W. O'NEIL, Respondent, v. ESTATE OF Terri L. MURTHA, Deceased, and Donald J. Murtha in his capacity as Executor of the Estate of Terri L. Murtha, Appellants.

No. 39895-4-I.

Court of Appeals of Washington Division 1.

Dec. 8, 1997.

Allan W. Munro, Seattle, for Appellants

Bert L. Metzger, Jonson & Jonson P.S., Seattle, for Respondent.

WEBSTER, Judge.

Terri L. Murtha made an oral agreement with Terrance O'Neil to repay him a $15,695.39 loan when she was "able" to do so. O'Neil seeks repayment of the loan with interest from Murtha's estate, and the sole question is whether his claim is barred by the statute of limitations under RCW 4.16.080(3). We adopt the majority view and hold that where a debtor promises to pay "when able," such cause of action accrues when the debtor in fact becomes financially able to pay, regardless of whether the creditor was aware of the debtor's ability to pay. We therefore conclude that the trial court did not err in finding O'Neil's claim time-barred.

FACTS

The following findings by the trial court are undisputed: ¹

On February 2, 1990, Terrance O'Neil loaned Terri L. Murtha $15,695.39. Murtha agreed to repay the loan when she was "able to pay" it. On that same date, Murtha's real property located in Seattle was redeemed from foreclosure. She had an equity of approximately $90,000 in that house; it was worth approximately $100,000. At the same time In addition to disability income and rent from her rental property, Murtha received wages averaging $32,800 per year during the years 1990, 1991, and 1992. Between 1990 and 1995, O'Neil and Clifton Miller, another friend of Murtha, assisted Murtha in her financial matters, which were often in a state of disarray. They updated her bookkeeping records and sorted through her bills so that she could pay them. O'Neil occasionally provided Murtha with money so that she could make her payments. At that time, O'Neil did not know that Murtha had received $32,848.28 from her grandfather's estate between August 1990 and October 1990. The trial court found that she was in fact able to pay the loan before May 1, 1992.

Murtha also owned another piece of real property, a rental property. Murtha had an equity of approximately $60,000 in the rental property; it was valued between $75,000 on the low end and $82,000 on the high end. At the time of the loan, O'Neil was aware that Murtha owned these two pieces of real property.

Murtha died on May 25, 1995 without having made any payments to O'Neil for the loan. On September 19, 1995, O'Neil filed a creditor's claim with Murtha's estate ("Estate"); such claim was rejected. On November 9, 1995, O'Neil filed a complaint against the Estate for the recovery of $26,511.03 plus interest. The trial court dismissed the suit with prejudice, finding that O'Neil's claim was time-barred by the statute of limitations.

DISCUSSION

A. Accrual of a Cause of Action Where the Debtor Promises to

Pay "When Able"

In Washington, the statute of limitations is three years for an express or implied contract which is not in writing and does not arise out of any written instrument. RCW 4.16.080(3). At issue here is when this statute of limitations period began to run.

A cause of action accrues and the statute of limitations begins to run when a party has the right to apply to a court for relief. Eckert v. Skagit Corp., 20 Wash.App. 849, 851, 583 P.2d 1239 (1978). The question therefore becomes: When does a cause of action accrue where the debtor has agreed to repay a loan when she is "able" to do so?

1. The Majority Rule vs. the Minority Rule

As both parties have indicated, this precise question appears to be one of first impression under Washington law. There is a split among state courts that have encountered this issue. See In re Estate of Page v. Litzenburg, 177 Ariz. 84, 90-91, 865 P.2d 128 (1993) (discussing the two distinct lines of cases); In re Estate of Buckingham, 9 Ohio App.2d 305, 307-08, 224 N.E.2d 383 (1967); see also C.S. Patrinelis, Annotation, When Statute of Limitations Commences to Run Against Promise to Pay Debt "When Able," "When Convenient," or the Like, 28 A.L.R.2d 786, 788 (1953).

Under the majority rule, a promise to pay "when able" is a conditional promise and thus no cause of action exists until an actual ability to pay has been shown, regardless of whether the creditor is aware of the debtor's ability to pay. Patrinelis, supra, at 788-90; see also Richardson v. Brecker, 7 Colo. 58, 59-60, 1 P. 433 (1883); Work v. Beach, 13 N.Y.S. 678, 679-80 (1891) (discussing Tebo v. Robinson, 100 N.Y. 27, 2 N.E. 383 (1885)); Van Buskirk v. Kuhns, 164 Cal. 472, 474, 129 P. 587 (1913); In re Clover's Estate, 171 Kan. 697, 701-02, 237 P.2d 391 (1951); Pitts v. Wetzel, 498 S.W.2d 27, 29 (Tex.Civ.App.1973); In re Estate of Page, 177 Ariz. at 90-91, 865 P.2d 128.

Under the minority rule, however, a promise to pay "when able" is an absolute promise, and thus a cause of action exists within a "reasonable time" after the promise is made regardless of whether the debtor has such ability to pay, and the limitations period does not commence until the expiration of such reasonable time. Patrinelis, supra, at 788, 790-91; see Hurtt v. Steven, 333 Ill.App. 181, 186-87, 77 N.E.2d 204 (1947).

Here, the trial court evidently followed the majority rule, finding that:

A loan which is to be repaid when the debtor "is able" to do so is a promise to pay when the debtor has the financial means to pay the debt. The statute of limitations begins to run only from the time when the debtor has the financial means to pay the debt. Therefore, the statute of limitations began to run on the Loan when Murtha became able to pay the Loan.

The statute of limitations began to run on the Loan ... without regard to whether O'Neil had knowledge of Murtha's ability to repay the Loan.

O'Neil contends that the trial court erred in following the majority rule, and that the court instead should have determined a "reasonable time" after which the statute of limitations period would commence under the minority rule.

2. The Discovery Rule

O'Neil argues that the minority rule should be adopted because the majority rule may encourage debtors to conceal their financial capabilities, and is therefore unfair to the creditor, as the creditor would not know when the cause of action accrued and when the limitations period began to run. However, O'Neil fails to show how adoption of the minority rule addresses his concerns. The minority rule does not require that the limitations period commence only where the creditor discovers or should discover the debtor's ability to repay; the minority rule only establishes a "reasonable time" before commencing the limitations period. See Hurtt, 333 Ill.App. at 186-87, 77 N.E.2d 204.

O'Neil therefore appears to diverge from both the majority and minority views in suggesting that we import the "discovery rule" into this branch of law. That is, he urges this court to adopt a rule whereby the statute of limitations does not begin to run against an action until the creditor discovers, or should discover, the debtor's ability to pay in cases where the debtor promises to pay "when able." However, O'Neil provides no legal authority for this alternate theory. Instead, he directs us to our recent decision in Crisman v. Crisman, 85 Wash.App. 15, 931 P.2d 163, review denied, 132 Wash.2d 1008, 940 P.2d 653 (1997).

There, we applied the discovery rule, concluding that the statute of limitations had not commenced against a jewelry store owner's conversion claim until she learned that the defendants had transferred corporate funds for their own benefit. Id. at 20-23, 931 P.2d 163. The discovery rule "operates to toll the date of accrual until the plaintiff knows or, through the exercise of due diligence, should have known all the facts necessary to establish a legal claim." Id. at 20, 931 P.2d 163. Crisman is inapposite, however, because as we indicated, the discovery rule applies to two categories of cases: (1) cases of fraudulent concealment; ² and (2) cases where the nature of the plaintiff's injury makes it difficult for the plaintiff to learn the factual elements giving rise to the cause of action within the limitations period. Id. at 20-21, 931 P.2d 163. O'Neil's case falls into neither category.

3. Statutes of Limitations

O'Neil further argues that the minority rule is consistent with "closely related Washington law," citing Pepper & Tanner, Inc. v. KEDO, Inc., 13 Wash.App. 433, 435, 535 P.2d 857 (1975) ("Where a contract is silent as to duration or states time for performance in general and indefinite terms, the court is to impose a reasonable time."). However, Pepper & Tanner involves the interpretation of contract terms, rather than the determination of when a cause of action accrues for the purpose of statutes of limitations. That is, O'Neil's situation does not involve an interpretation of a contract term because it is undisputed that Murtha was able to pay the loan prior to May 1, 1992. Instead, O'Neil's situation involves the sole question of the commencement of the limitation period which should be considered within the context of principles governing statutes of limitations law, rather than within the context of principles governing contracts law.

The statute of limitations "is not an unconscionable defense, but a declaration of legislative policy to be respected by the courts." Davis v. Rogers, 128 Wash. 231, 235, 222 P. 499 (1924) (citing J.M. Arthur & Co. v. Burke, 83 Wash. 690, 693, 145 P. 974 (1915)). It serves to shield defendants and the judicial system from stale claims. Crisman, 85 Wash.App. at 19, 931 P.2d 163. On a pragmatic level, "[w]hen plaintiffs sleep on their rights, evidence may be lost and witnesses' memories may fade." Id. On a more fundamental level, the Supreme Court has stated:

It is easy to argue, relative to any statute of limitations as...