Arizona Supreme Court Gets It Right – Collection on Credit Card Debt

Mertola LLC v Alberto J Santos/Arlene Santos CV-17-0109-PR (AZ Supreme Court, 7-27-18)  Statute of limitation for debt collection in Arizona – cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment.

Decision:

Mertola, LLC, sued Alberto Santos and his wife Arlene Santos to collect an outstanding credit-card debt. Although the credit-card agreement gave the creditor the option of declaring the debt immediately due and payable upon default, we hold that even if that option was not exercised, the cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment. Mertola’s claim was barred by the statute of limitations six years after that date pursuant to A.R.S. § 12-548(A)(2).  We vacate the court of appeals’ opinion and affirm the trial court’s summary judgment in favor of Santos. We award Santos reasonable attorney fees pursuant to the Account Agreement and costs pursuant to A.R.S. § 12-341.

History:

Santos moved for summary judgment, arguing that the claim was barred by the six-year statute of limitations applicable to credit-card debt under § 12-548(A)(2). Santos maintained that the Bank’s cause of action to recover the entire debt accrued after the first missed payment in February 2008. Mertola countered that a missed payment gives the creditor the right to sue only for that payment. According to Mertola, the cause of action for the entire debt could not accrue until the creditor accelerated the debt. The superior court granted Santos’s motion, finding that “all of the breaches” alleged by Mertola “occurred more than six years prior” to it filing this action.

The Arizona Supreme Court reversed a very bad court of appeals decision.

The court of appeals reversed, agreeing with Mertola that Santos’s missed payments, by themselves, gave the creditor the right to sue only for those payments. Mertola, LLC v. Santos, 241 Ariz. 572, 574 ¶8, 575¶ 13 (App. 2017).   The Arizona Supreme Court reversed this very bad decision (yea for them).

What if borrower cures the missing payments?

Consistent with our decision in Gust, Rosenfeld, we hold that when a credit-card contract contains an optional acceleration clause, a cause of action to collect the entire outstanding debt accrues upon default: that is, when the debtor first fails to make a full, agreed-to minimum monthly payment. Accord Taylor v. First Resolution Inv. Corp., 72 N.E.3d 573, 588 (Ohio 2016). This rule will encourage creditors to promptly begin their collection efforts and protects debtors from stale claims. See Navy Fed., 187 Ariz. at 495 (acknowledging the incentive to begin collection efforts when a cause of action accrues at default). But, as we held in Browne, a debtor may cure a default if the creditor accepts a payment of arrearages that brings the account current consistent with the parties’ contract. 117 Ariz. at 75. By allowing the debtor to cure the default, the creditor relinquishes its pending cause of action to collect the debt, and the statute of limitations commences only upon a new default. Partial repayment, however, does not cure the default or reset the limitations period.

Click here to read full decision….

---

What may still be in question for the future is whether amortized loans with stated payment schedule, each missed payment carries with it a separate statute of limitations timeline as held in Navy Federal v Susan Jones, 187 Ariz. 493, 930 P.2d 1007 (Court of Appeals of Arizona, Division 2 12/26/96)  Decision: We hold that the six-year period commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause.