The recently introduced Ohio H.B. 251 is pending in the House’s Civil Justice Committee, and is sparking significant argumentation among trade groups on both sides of the issue.
Under current Ohio law,1 lawsuits on an agreement, contract, or promise in writing must be brought within eight years after the cause of action accrued. This statute of limitations applies to many business or consumer contracts, credit cards, and line of credit agreements. The new proposal would reduce the time frame to just three years.2
Ohio’s six-year statute of limitations for promissory notes, which is provided by a different statute3, will not be affected. Similarly, Ohio’s four-year statute of limitations for contracts for sale of goods4 will also be unaffected.
Should Ohio reduce its statute of limitations?
Testimony in support of the reduction has been submitted by the Ohio Alliance for Civil Justice, whose leadership team includes representatives of the National Federation of Independent Businesses, Ohio Chamber of Commerce, Ohio Council of Retail Merchants, Ohio Hospital Association, Ohio Manufacturers' Association, Ohio Society of CPAs, and Ohio State Medical Association.
The testimony in support of the bill emphasized the following benefits:
Business owners would be free to move into future projects with certainty that the previous contract is not hanging over them;
The burden of record retention would be reduced; and
Ohio would become a more attractive state to operate a business.
Testimony in opposition to the bill was submitted by the Ohio Bankers League, the Ohio Creditors' Attorneys Association, the Ohio Receivables Management Association, the Receivables Management Association International, the National Creditors' Bar Association, and the Ohio Association for Justice (which consists of trial lawyers).
The testimony in opposition of the bill raised the following:
The reduced time frame would force creditors to take a more aggressive approach to collections, reduce out-of-court payment workouts, and induce the filing of suits sooner, thereby clogging and burdening courts, and causing all parties concerned to incur additional costs;
Debtors would be enabled to "run out the clock" to evade debts and avoid their just obligations;
Evidence does not show that reducing the statute of limitations is causally related to economic growth or the business climate, and the opposite may be true;
Creditors' risk would increase, causing them to look for ways to reduce their exposure, by limiting credit offered to higher-risk borrowers, lending less, increasing fees and interest rates, demanding more security, requiring larger down payments for home loans, or instituting annual fees;
Surveys of other states show that only five states (and the District of Columbia) have a three-year statute of limitations on written contracts, and the national average is over six years;
In most situations, the parties are free to negotiate a deviation from the statute of limitations; and
The market for sales of receivables would diminish, thereby reducing the lender’s ability to minimize its losses and reduce risk.
To avoid potential losses, creditors should review their applicable contracts, or enlist the help of an attorney, to determine whether the statute of limitations window will be shortened. We will monitor the proceedings regarding this bill, and will keep our clients advised.
For more information, please contact Larry R. Rothenberg, Esq. Mr. Rothenberg is a Shareholder in the firm’s Real Estate Default Group who focuses on residential and commercial real estate, complex foreclosures, evictions, and title insurance issues. With more than 35 years of legal experience, Mr. Rothenberg has been recognized by Martindale-Hubbell as a leader in his field, and has been selected in multiple editions of Ohio Super Lawyers.
2Section 4 of the bill provides that for applicable causes of action that accrued prior to the effective date of this act, the period limitations shall be three years from the effective date of this act or the expiration of the period of limitations in effect prior to the effective date of this act, whichever occurs first.
3ORC §1303.16 (UCC 3-118)