Osprey Portfolio, LLC v. Izett, No. 942 MAL 2011 Supreme Court of Pennsylvania, August 13, 2012
The Pennsylvania Supreme Court has agreed to hear a case to consider how to define the time bar on loan guarantees. The high court will determine whether a guaranty signed under seal constitutes an "instrument" (which is governed by a 20-year statute of limitations pursuant to 42 Pa.C.S. 5529), or a "contract" (which is governed by a four-year statute of limitations pursuant to 42 Pa.C.S. 5525).
In September 1999, Izett Manufacturing, Inc. and First Union National Bank entered into a loan transaction for $50,000. In connection with this loan, George Izett executed a guaranty under seal, whereby Izett agreed to unconditionally guarantee timely payment of all sums due under the loan. Subsequently, the bank sold the loan to Osprey Portfolio, LLC, and assigned Osprey the Note and Guaranty. In December 2005, the borrower failed to make timely payments under the loan, and received a notice of default and demand for immediate payment from Osprey. Five years later, Osprey filed a complaint of confession of judgment against Izett, seeking repayment of the loan pursuant to the Guaranty. Judgment was entered June 15, 2010 against Izett. Izett then filed a petition to strike/open the judgment, arguing that Osprey had failed to file its complaint within the four-year statute of limitations codified at 42 Pa.C.S. 5525, which Izett claimed was the applicable statute. After a hearing, the trial court found that the applicable statute of limitations was the 20-year statute governing instruments under seal, set forth at 42 Pa.C.S. 5529.
In his appeal to the Pennsylvania Superior Court, Izett argued, in part, that since the statute did not provide a definition for "instrument," then the UCC definition of "instrument" (which defines an instrument as a negotiable instrument) should apply. The Superior Court rejected this argument and held instead that the ordinary meaning of "instrument" must apply. The court stated, in part, that "Black’s Law Dictionary defines ‘instrument’ as a ‘written legal document that defines rights, duties, entitlements, or liabilities, such as a contract, will, promissory note’ or ‘in fact, any written or printed document that may have to be interpreted by the courts.’" Applying this definition, the Superior Court determined that the Guaranty was, in fact, an "instrument" because it defined rights, duties, entitlements, and liabilities of the parties involved and, therefore, the applicable statute of limitations was the 20-year statute. The Pennsylvania Supreme Court will decide whether the Superior Court erred in determining that the Guaranty was an "instrument" under seal rather than a "contract" under seal.
Clearly, there is a huge span of time in which to bring an action at stake here. We will keep you updated. In the meantime, parties must check with legal counsel to determine the potential effects of signing any contracts "under seal."