Don’t Forget To Cash It In

David Allen
Partner, Jaburg|Wilk Attorneys at Law


Found within the countless laws governing commercial transactions are many traps for the unwary. One such “trap” is found in the law governing certificates of deposit (CDs) and promissory notes. While most people would assume that their CD is “as good as gold” and that it can be held indefinitely until such time as the holder chooses to convert it into cash, that is not at all the case.

Let’s say that you purchased a CD without a defined maturity date, which accrues interest at 5% per annum and is payable on demand. Given the fact that the interest rate you are earning on the CD is much higher than the rate you could earn if your money was in a typical savings account, you may be tempted to just continue to hold on to your CD indefinitely, allowing it to increase in value as it accrues interest. While this investment strategy will work for a while, the outcome could be disastrous if you do not pay attention to the law that limits the amount of time that you have to cash in the certificate. A.R.S. § 47-3118(B) states “if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten years.”

What the first part of this law means is that if you make a demand to cash in the CD but are not paid, you only have six years after having made the demand to file a lawsuit to force payment; otherwise, your right to file such a lawsuit will be barred. This may not be too concerning — however, the second part of the law is. What is stated there is that unless you have received the payment of either some part of the principal or the interest during a continuous 10-year period, you are thereafter forever precluded from filing a lawsuit to collect on the CD. This “limitation of actions” clearly stops the holder of the CD from holding onto the CD and accruing interest indefinitely.

It is worth noting that this law is not limited to CDs only; it is equally applicable to promissory notes. The reasoning for this statute can be found in the comments to the Official Uniform Commercial Code, which states “a failure to demand payment may indicate that the holder [of the note] did not intend to enforce the obligation but neglected to destroy the note. A limitations period that bars stale claims in this kind of case is appropriate if the period is relatively long.”

Similar limitations to enforcing payment apply to CDs or notes that do have a due date. The point to keep in mind is that CDs or notes should not be treated the same as cash or bank accounts, and the holder of such instruments needs to keep their eye on the calendar.