Agreement to Set-Off Future Payments by Amount of Unpaid Debt Not Improper Agreement to Extend Statute of Limitation Prior to Accrual of Claim

On July 1, 2021, the First Department issued a decision in Wagner v. Pegasus Capital Advisors, L.P., 2021 NY Slip Op. 04198, holding that an agreement to set-off future payments by the amount of an unpaid debt was not an improper agreement to extend the statute of limitation prior to the accrual of a claim, explaining:

Contrary to plaintiff's allegations, the expiration of the statute of limitations for suing on the parties' note did not extinguish the underlying obligation. Nor was the set-off provision in the parties' short-term bridge note an invalid attempt to extend the limitations period prior to the accrual of a claim. Rather, it was a separate right to provide a means of recoupment for defendants, should the note go unpaid and plaintiff be entitled to distributions from investments made through defendants.

Nor was the exercise of the contractual setoff under the note barred by CPLR 203(d). The provision of the agreement rendered the claim and setoff intertwined, and plaintiff had agreed, in substance, to treat the distributions as subject to recoupment.

(Internal citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.