Contractors and subcontractors should be aware of contractual and statutory time limitations by which a claimant must commence an action for breach of contract. If the lawsuit is not started within the contractual or statutory time period, the suit will be dismissed as time-barred.
Under New York’s statute of limitations, a breach of contract claim must be brought within six years from the date upon which the cause of action accrued. Claimants should be mindful, however, that the parties’ agreement may reduce the statutory six year time period to a substantially shorter time period.
In addition, problems may arise as to when the cause of action accrues to commence the limitation period. In the recent case of Vardo Construction Corp. v. Spectrum Contracting Group, Inc., the court applied the short four-month contractual period to bar the subcontractor’s claim for breach of contract.
Spectrum Contracting Group, Inc., as general contractor, entered into an agreement with the New York City Housing Authority to provide labor and materials for a project known as the Polo Grounds Towers Community Center. By written agreement, Spectrum subcontracted a portion of the work to Vardo Construction Corp. The subcontract established a four-month time limitation on claims by the subcontractor against the general contractor. The four-month time limitation ran from the date of the breach of the subcontract. A dispute arose over payment and completion of the work, and on September 23, 2005, the general contractor sent a letter advising the subcontractor that the general contractor would be completing the subcontractor’s work and backcharging the subcontractor for the costs to do so.
The subcontractor sued the general contractor for breach of contract on December 22, 2006, seeking to recover its subcontract balance. The general contractor moved for summary judgment based on of the subcontract’s four-month limitation period.
The court granted summary judgment in favor of the general contractor. In so doing, the court relied on the general contractor’s September 23, 2005 letter to the subcontractor. The court noted that the correspondence clearly advised the subcontractor that the general contractor was going to complete the subcontractor’s work, and would backcharge the subcontractor for the costs incurred in so doing. According to the court, this was when the subcontractor knew that it was not going to be allowed to complete the project, would not be paid until completion of the project by another party, and indeed might not be paid at all. The court held that it was at this time that the subcontractor had a claim against the general contractor for breach of contract. Consequently, the four-month contractual limitations period ran from September 23, 2005 to January 23, 2006. Since the four-month limitations period expired on January 23, 2006, and the subcontractor’s action was not commenced until December 22, 2006, the action was dismissed as time-barred by the court.
Courts will strictly construe time limitations periods that are voluntarily negotiated by the parties. This means that before even considering the merits of a claim, courts will make certain that there has been strict compliance with the parties’ agreed-upon time limitation periods. Courts will not rewrite or change the terms of an agreement that was freely negotiated between the parties. The unpaid claimant, or potential claimant, should make every effort to become thoroughly familiar with their contractual limitation periods. If the terms of the limitations period are not complied with, the claim will often be lost.
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