By: Thomas S. Tripodianos Published: July 2010

Can a Contractor and manufacturer of equipment avoid liability by shortening the time frame within which the Owner may bring claims against them?

Question. Can a Contractor and manufacturer of equipment avoid liability by shortening the time frame within which the Owner may bring claims against them?

Answer. Yes but with a caveat. Consumer and Homeowner protection statutes may modify the general rule so be sure to go over your particular circumstances with counsel.

The Contract was signed in September, 2006.  The Contract was pre-printed and four pages long.  On the first page of the contract appear the following notice:

YOU ADMIT THAT YOU HAVE READ THIS PAGE IN ADDITION TO THE ATTACHMENT WHICH CONTAINS IMPORTANT TERMS AND CONDITIONS FOR THIS CONTRACT BEFORE SIGNING. YOU STATE THAT YOU UNDERSTAND ALL THE TERMS AND CONDITIONS OF THIS CONTRACT, INCLUDING, BUT NOT LIMITED TO, PARAGRAPHS 5, 6, 7, 8, 9, AND 10....
Paragraph 10 appears on the second page of the contract, and provides:
10. TIME TO FILE LAWSUIT OR OTHER ACTION. YOU AGREE TO FILE ANY LAWSUIT OR OTHER ACTION YOU MAY HAVE AGAINST U.S. OR OUR ASSIGNEES, AGENTS, EMPLOYEES, SUBSIDIARIES, AFFILIATES OR PARENT COMPANIES WITHIN ONE (1) YEAR FROM THE DATE OF THE EVENT THAT CAUSED THE LOSS, DAMAGE OR LIABILITY.

There is no dispute that Owner executed a contract with Contractor for the purchase of equipment. The parties also do not dispute that the contract identified Contractor as an “Authorized Dealer,” of the equipment and stated that the contract would be submitted to manufacturer “for approval and purchase of the system.” The parties further agree that the Contract provided that manufacturer would notify Owner only if it rejected the contract or otherwise did not purchase it from Contractor.

In April, 2007, the Owner began noticing defects in the work.  Owner contacted Contractor to schedule repair appointments for May 3, 2007, June 7, 2007, and June 18, 2007, but that at each of these appointments the Contractor did not show up.  Finally, on June 18, 2007 a representative of Contractor informed Owner that she should call the manufacturer for service.  Owner states that she called manufacturer and scheduled a repair appointment for June 20, 2007 at 8:00 a.m., but that it was too late: approximately 5 hours before the Contractor repairperson arrived, the home was flooded.

On July 25, 2008, more than a year after the plaintiffs' home was flooded, the plaintiffs commenced a lawsuit in New York Supreme Court.  The Owner asserts the following claims against all the defendants: (1) negligence and gross negligence, (2) beach of express and implied warranties, (3) breach of contract, (4) products liability based on design and manufacturing defects, and (5) breach of the duty of care.  Contractor and manufacturer move to dismiss all of these claims on the ground that the Owner did not file suit within the one-year statute of limitations provided in the Contract.

It is well-settled that courts applying New York law will enforce a shortened statute of limitations when it is reasonable and agreed to by contract.  Also, New York courts have consistently held one year to be a reasonable period of limitations in similar cases.   New York courts also enforce contract provisions shortening the limitations period for bringing any claim against a party, including claims that sound in tort.  This includes enforcement of contractual limitations periods for claims of gross negligence.
Here, the parties have contracted to shorten the limitations period for filing “any” lawsuit against Contractor or its assignees. If enforced, the provision would therefore apply to all claims, including the plaintiffs' allegations sounding in contract and tort. The one year period of limitations in the Contract is reasonable and enforceable under the prevailing law.

However, the contract, on its face, is between Contractor and Owner. Manufacturer therefore is not necessarily a beneficiary of the agreement, and arguably may not be able to enforce the contractual limitations period. Generally, a party may invoke the provisions of a contract to which it is not an original party only through theories of “assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver [or] estoppel.

Here, the theory that applies most directly is “assumption,” referred to also as assignment. Under New York law, the benefits and burdens of contracts are freely assumed or assigned absent a contractual provision to the contrary. If such an assignment took place, Contractor and manufacturer could enforce the shortened limitations period.

The Contract was assigned to manufacturer.  It therefore follows that manufacturer, stepping into Contractor's shoes, may enforce all of the terms of the Contract against Owner, including the shortened limitations period.

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