It is human nature to impose term limits. In contract law, these limits are everywhere, from the time to assert a claim to the time to demand arbitration or file suit in court.
A variety of logical explanations has been offered for such destructions of rights by the lapse of time. Many of the arguments concern the preservation of evidence. Over time, witnesses disappear and documents are lost or destroyed. At the heart of the matter is simply the desire to know that, after some period of time, a person can assume that the dead hand of the past will lose its grip.
What is a statute of limitation?
Every legislature of every state has enacted laws providing that after a certain number of years, a lawsuit cannot be filed to enforce a right. That right may be a claim for breach of contract, a suit for personal injury caused by someone's negligence, or for any other civil claim (limitation periods for crimes are not discussed in this article).
For example, in Florida, a person has four years to commence litigation when the claim is in negligence, five years for breach of contract and two years for libel and slander. With certain exceptions, to be discussed, once the limitation period passes, the claim is no longer recognized by the courts.
Are limitation periods predictable?
No. You may have two years to file a breach of contract suit in one state, while in others it may be one year or three years. In addition, you may have multiple claims arising out of the same facts, and yet each may have its own limitation period.
As an example, a complaint may have to be filed within one year against a bond or for a lien, two years for breach of the underlying contract, and five years if negligence is involved. With this circumstance, after three years of inaction on your part, you may have lost your bond or lien rights and your contract claim, but a lawsuit based on negligence may still have life.
When does the period start?
The limitation period begins to run from the “accrual of the cause of action.” For someone who is not a lawyer, this statement may not be of much help.
Generally, a cause of action “accrues” when all of the necessary elements are present. With property damages, for example, you have the right to sue from the moment that your property is harmed, on a promissory note, from the time a demand for payment is made.
For actions in breach of contract, a legal fiction is employed. Strictly speaking, the owner may have breached the contract when a justified time extension is not granted, site access is unexpectedly denied, or timely payments are not made.
Great complexity could be generated by a requirement that each breach be separately timed. Instead, the courts have ruled that because the owner could theoretically correct the breach during contract performance, the limitation “clock” for bringing suit does not begin to run until the contract is over, whether by completion, termination or otherwise.
Normally, the time of “accrual” is not difficult to determine. There are, of course, exceptions. Mechanic's lien laws may provide that the claim of lien or lien itself must be filed within a fixed period after the last labor is provided or materials are furnished. But what if the contractor returns for some minor punch-list work? Or warranty work? These cases continue to be litigated.
Tolling, discovery rule and revival
TOLLING: The courts and legislatures sometimes have a hard time sticking by the harsh rules they create. As a result, exceptions to the rules are invented.
Let us say you are dealing with a one-year limitation period. In the 11th month, your attorney files a lawsuit but in the wrong court. Or the case is dismissed because the pleadings are defective. In any event, you are thrown out of court and now 12 months have elapsed. Is it all over?
In Welding Inc. v. Bland County Service Authority, 541 S.E. 2d 909 (2001), the facts were as follows. Welding sued a Virginia county in federal court in West Virginia over the construction of a piping system. Bland County, Va., had a forum-selection clause in the contract requiring suit only in a Virginia circuit court, and so the case was dismissed. By the time Welding refiled in Virginia, the statute of limitations period had lapsed.
Fortunately for Welding, Virginia had a tolling statute that applied. Section 8.01-229(E)(1) of the Virginia Code provides that so long as the improperly filed lawsuit was filed within the statutory time limit, the plaintiff, Welding, had six months after dismissal to refile in the right court. The first lawsuit tolled the running of the statute of limitations.
THE “DISCOVERY” RULE: What happens when you were harmed, but did not know it? Where there is hidden personal injury or property damage, the statute of limitations may not begin to run until the injury was discovered or reasonably should have been discovered.
Many contractors have learned of this rule with dismay. Buried faulty wiring, undetected leaks, mislocated underground utilities and other mistakes may end up extending the time for suit.
When the discovery rule first began to be used, it became apparent that exposure to liability could go on forever. So certain caps were invented.
In Illinois, for example, injuries relating to defective products must be brought, if at all, within 12 years of the sale of the product or 10 years from delivery, whichever occurs first. (Note: This is a summary of the statute and the exact language should be reviewed carefully.)
REVIVAL: Revival is a trap for the unwary. Here we go back to the original rationale for statutes of limitations:
"The Act of Limitations does not operate to extinguish the debt, but to bar the remedy. The Act of Limitations is predicated on the principle that from length of time a presumption is created that the debt has been paid, and that the debtor is deprived of his proof by the death of his witnesses or the loss of receipts."
-Barney v. Smith (Md. 1809)
Given this rationale to protect a party from stale claims, the protected party can opt to waive the protection. Accordingly, a promise to pay or to fix a problem after the limitations period has expired can revive the old claim.
"[E]ither an express unconditional promise to pay a subsisting debt, a conditional promise to pay such a debt if there is evidence to show that the condition has been performed, or an acknowledgment of such a debt from which a promise to pay may be implied, removes the bar created by the statute of limitations and revives the debt."
-Potterton v. The Ryland Group, Inc., 424 A. 2d 761 (Md. App. 1981)
The explanation for revival sounds like “waiver” (a voluntary relinquishment of a known right) discussed in a prior article. An agreement to continue negotiations past the limitations period may not be enough.
Statutes of repose are interesting creatures to lawyers and scary things to contractors, particularly as they are cumulative to contractual time limits. It is a good idea, then, for contractors not only to keep a checklist of contract time events (written notices, time to demand arbitration, and the like) for each contract, but also of statutory ones (lien filings, bond demands, time to sue).
When you miss a deadline, use this article as a starting point to find out if other avenues of relief are available. EC