A dispute that often arises in litigation seeking to recover money pursuant to a promissory note is whether the statute of limitations has expired. The reason that disputes tend to arise in this area is that it is somewhat of a complex analysis which is impacted by multiple factors. The North Carolina Court of Appeals just addressed an issue of first impression with regard to the statute of limitations as applied to promissory notes. This issue is: whether the statute of limitations on a promissory note begins to run on the date the note is signed or the date appearing on the face of the note?

A common scenario is that a promissory note will include an “effective date” in the first or second paragraph and then, for a host of reasons, the parties do not sign for days, or even months, after that effective date. The North Carolina Court of Appeals appears to have ruled in Pedlow v. Kornegay that the date of signature is a key date for statute of limitations purposes. In Pedlow a promissory note was dated July 30, 2008. It was signed on July 2, 2009. The Court concluded that the statute of limitations began to run on July 2, 2009 – the date of signature. Of critical importance to the Pedlow decision is the fact that the debtor made no payments against the principle or interest on the loan. The Court’s reasoning in Pedlow centered around the fact that the Plaintiff would not have been able to sue under the note until it was signed, and therefore the statute of limitations could not begin to run until the debtor had signed.

Additionally, in Pedlow the note at issue was signed “under seal.” Often promissory notes include (seal) after signatures. Most people do not think much about what that means. However, the word “seal” is very important. This is because under N.C. Gen. Stat. § 1-47(2) sealed instruments are governed by a ten-year statute of limitations. Thus, since the note in Pedlow was signed under seal, and no payments were made, the court concluded that the statute of limitations would run ten years from the date of the debtor’s signature.

Of note, is that had the debtor in Pedlow made payments for a period of time and then ceased, the cause of action would not have accrued until the right to institute and maintain a suit arose – namely when the payments stopped. We would then apply the ten-year statute of limitations for sealed instruments to the date on which the cause of action arose (the date the loan went into default). Debtors should not be permitted to argue that a statute of limitations on a promissory note begins to run on the date the note is signed in all circumstances. Otherwise, a thirty year note (as is the case with most home loans) would be of no use to lenders, as they would be precluded from suing on the note ten years after the date on which the note was signed.

The key date to consider for statute of limitations purposes in most promissory notes is going to be the date of default, because that is when a cause of action arises. However, in the instance where the debtor makes no payments, as was the case in Pedlow, the law of North Carolina is now that the cause of action arises, and the statute of limitations begins to run on the date the debtor signed the note – regardless of any other date appearing in the note.

If you would like to speak with an attorney regarding whether a viable claim remains under a promissory note, one of our attorneys would be glad to talk with you.