Hahn Automotive Warehouse, Inc. v. American Zurich Insurance

Appeal and cross appeal from an order of the Supreme Court, Monroe County (Kenneth R. Fisher, J.), entered June 15, 2009 in a breach of contract action. The order, among other things, granted plaintiffs cross motion for partial summary judgment.

It is hereby ordered that the order so appealed from is modified on the law by granting those parts of the motion seeking summary judgment dismissing the second through fourth causes of action and as modified the order is affirmed without costs.

Memorandum: Plaintiff commenced this breach of contract action seeking, inter alia, a determination that bills sent by defendants to plaintiff pursuant to several insurance contracts issued to plaintiff by defendants were time-barred and thus that plaintiff had no duty to pay those bills. In their second amended answer, defendants asserted 19 counterclaims seeking to recover damages for plaintiffs alleged breach of those insurance contracts. Defendants moved for, inter alia, a determination that they were entitled to satisfy any part of plaintiffs outstanding debt from a $400,000 letter of credit previously issued to them by plaintiff, and plaintiff cross-moved for partial summary judgment determining, inter alia, that any amounts sought by defendants in the counterclaims were time-barred. Logically addressing first plaintiffs cross motion, we note that Supreme Court granted those parts seeking dismissal of the counterclaims as time-barred insofar as they sought recovery for debts arising more than six years prior to the commencement of this action. The court also, however, granted that part of defendants’ motion seeking a determination that defendants were entitled to satisfy any part of plaintiffs outstanding debt from a $400,000 letter of credit previously issued to them by plaintiff, notwithstanding the expiration of the statute of limitations.

We reject the contention of plaintiff on its appeal that the court erred in determining that defendants were entitled to apply the letter of credit to all debts, including those that were time-barred. A letter of credit is interpreted in accordance with the same rules that apply to any other contract (see Venizelos, S. A. v Chase Manhattan Bank, 425 F2d 461, 465-466 [1970]), and “[a] familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing” (W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]). Contrary to plaintiffs contention, the letter of credit unequivocally permitted defendants to apply the letter of credit to any debts that plaintiff owed to defendants. The letter of credit did not permit plaintiff to direct the particular debt to which the letter of credit should be applied, nor did it prohibit defendants from using the letter of credit to satisfy otherwise time-barred debts. Furthermore, plaintiff provided the letter of credit well before the current controversy arose. Thus, because “the payment in question [was] already in the creditor^’] possession as security for a debt . . . , the money already belongted] to the creditor[s] and [they were entitled to] apply it to the obligation in any manner” that they chose (Lines v Bank of Am. Nat. Trust & Sav. Assn., 743 F Supp 176, 180 n 2 [1990]). Contrary to plaintiffs further contention, plaintiff could not set conditions upon the use of the letter of credit after it had been provided to defendants. As previously noted, “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms” (W.W.W. Assoc., 77 NY2d at 162), and the letter of credit at issue specifically stated that it “cannot be modified or revoked without [defendants’] consent.”

With respect to plaintiffs contention that defendants could not apply the letter of credit to the debts that arose prior to the expiration of the statute of limitations, we note the well-settled proposition that “[t]he expiration of the time period prescribed in a [s]tatute of [[limitations does not extinguish the underlying right, but merely bars the remedy . . . Nicely summarized elsewhere, ‘[t]he theory of the statute of limitations generally followed in New York is that the passing of the applicable period does not wipe out the substantive right; it merely suspends the remedy’ ” (Tanges v Heidelberg N. Am., 93 NY2d 48, 55 [1999]; see Matter of Paver & Wildfoerster [Catholic High School Assn.], 38 NY2d 669, 676 [1976]). Notably, plaintiff does not contend that the debts at issue are not due and owing. Thus, despite the expiration of the statute of limitations with respect to those debts, defendants were entitled to apply the letter of credit to them.

Contrary to the contention of defendants on their cross appeal, however, the court properly concluded that the counterclaims for any debt that arose more than six years prior to the commencement of this action were time-barred. The contention of defendants that the claims for those debts did not accrue until they made a demand for payment is without merit. “ ‘Where, as here, the claim is for payment of a sum of money allegedly owed pursuant to a contract, the cause of action accrues when the [party making the claim] possesses a legal right to demand payment’ ” (Minskoff Grant Realty & Mgt. Corp. v 211 Mgr. Corp., 71 AD3d 843, 845 [2010]; see Kingsley Arms, Inc. v Copake-Taconic Hills Cent. School Dist., 9 AD3d 696, 698 [2004], lv dismissed 3 NY3d 767 [2004]; Albany Specialties v Shenendehowa Cent. School Dist., 307 AD2d 514, 516 [2003]; Town of Brookhaven v MIC Prop. & Cas. Ins. Corp., 245 AD2d 365 [1997], lv denied 92 NY2d 806 [1998]). Thus, in such a case, the statute of limitations “begins to run when the right to make the demand for payment is complete, and the [party making the claim] will not be permitted to prolong the [s]tatute of [[limitations simply by refusing to make a demand” (State of New York v City of Binghamton, 72 AD2d 870, 871 [1979]). Here, the court properly determined that the counterclaims for payment of the debts at issue were time-barred because defendants had the right to demand payment for those debts more than six years prior to the commencement of this action. That conclusion does not, however, prevent defendants from applying the letter of credit, which plaintiff had previously provided to them, to any debt, including those debts that are time-barred, inasmuch as the expiration of the statute of limitations merely bars the remedy but does not extinguish defendants’ rights.

We agree with the further contention of defendants on their cross appeal that those parts of their motion for summary judgment dismissing the second through fourth causes of action seeking damages arising from their use of the letter of credit should have been granted. Indeed, we note that the court properly determined that those causes of action were without merit, but it did not expressly dismiss them. We therefore modify the order accordingly.

We have considered the remaining contentions of the parties and conclude that they are without merit.

All concur except Peradotto, J., who dissents in part and votes to modify in accordance with the following memorandum.