Firm allowed to collect Y1 billion on defaulted loan

The Superior Court yesterday ruled that a company is entitled to collect from another firm over a billion yen in debt that stemmed from a 2-billion yen loan that was first transacted in 1988—or about 16 years ago.

Although plaintiff Western Mortgage Co. Inc. and defendant FTD Ltd. had different arguments on the prescribed period within which legal actions could be brought to court relating to the transaction, associate judge David Wiseman said Western is entitled to collect on a defaulted loan.

The judge said the starting period of the statute of limitation—which sets the time frame within which a suit may be brought to court to enforce an agreement—was reset several times over subsequent transactions that effectively amended the parties’ contract.

Western seeks to collect over Y1.35 billion—or approximately $12.24 million based on current exchange rates—from FTD, which had signed a loan guarantee to secure the 2 billion yen (over $18 million) obtained by EIEI from Pacific Mortgage Co. Ltd. in July 1988.

According to the court, the mortgage originally covered 16 lots, but was amended to include two additional lots that same year. EIEI and Pacific entered into a second mortgage in Aug. 1989. The court said there is no evidence that FTD protested the contract revision.

In 1990, Pacific partially released the mortgage, particularly the lien on 11 lots, which meant that seven other lots remained encumbered through the mortgage.

The court noted that EIEI, FTD, Pacific, Kabushiki Kaisha Oita Flower Country Club (OFC), and Harunori Takahashi executed an “assumption agreement” in December 1993, wherein OFC assumed joint responsibility with EIEI for the 1988 and 1989 mortgages.

It also said that EIEI executed a document acknowledging that it owed Pacific over 1.35 billion yen in June 2000. In June 2002, Pacific assigned its rights over the mortgages to Yugenn Kaisha Torico Property, which, in turn, assigned the rights to Western.

Western notified FTD in Oct. 2002 that, due to non-payment of the loan, it would seek the foreclosure of the mortgages. Western filed the civil action in court in Jan. 2003.

FTD contended, however, that the complaint was barred by the statute of limitations, which it claimed to be only six years. Western argued that the prescription period within which to bring a court action is not a valid defense in the case, adding, however, that the statute of limitations clock was restarted in 2000, when EIEI reaffirmed the mortgage to Pacific.

Wiseman said that, while the statute of limitation generally begins when a party knows or has reason to know that she was injured, the case involves several contracts that reset the prescription clock.

“A contract is discharged if a new agreement comes into effect when some of the terms of the new contract are inconsistent with the old contract,” the judge said. “Each modification of the mortgage resulted in a new contract.”

Wiseman also said that the prescription clock was ultimately reset to begin in 2000, when EIEI executed a document acknowledging the debt to Pacific.

“The court finds that the statute of limitations has not expired, and Western is entitled to collect from FTD pursuant to EIEI’s loan default,” he said.