By: Alexander A. Miuccio Gregory J. Spaun Published: October 2018

Court Rejects Enforceability of Contractual One-Year Time to Sue Limitation

Although New York’s statute of limitations provides for a six-year time limit to commence an action for breach of contract, parties are allowed to contractually reduce this period, provided that the shortened period is fair and reasonable under the particular circumstances of each case.

In the recent case of D&S Restoration, Inc. v Wenger Construction Co., Inc., an appellate court addressed the enforceability of a contractual one-year time limitation period.

Background

Wenger Construction Co., Inc. was the general contractor on a construction project with the New York City School Construction Authority. In March of 2011, Wenger subcontracted with D&S Restoration, Inc., for D&S to remove certain material on the project believed to contain asbestos and PCBs.  The subcontract identified the price that would be paid for the removal of the specified materials.  It also provided that should the materials later be determined to not contain asbestos or PCBs, the quantity would be deducted from the scope of the work with a credit change order, and the subcontract price would be reduced accordingly.  The subcontract further provided that the payment from the SCA was a condition precedent to payment by Wenger to D&S, and that final payment to D&S was subject to any credit changes as determined by the SCA.  The subcontract also contained a provision that no lawsuit could be maintained by D&S against Wenger unless commenced within one year after the substantial completion of D&S’s work.

D&S completed its work on the project in June of 2012, and it submitted an invoice to Wenger with its proposed credit changes.  D&S also submitted its proposed credit changes to the SCA. Wenger, however, did not advise D&S as to the amount agreed upon by the SCA until March of 2014.  According to D&S, despite D&S’s repeated inquiries, Wenger did not confirm or send any documentation confirming the credit to the SCA.  The final change order for the asbestos work was not signed off by Wenger until May of 2016, while the SCA did not sign off on it until June of 2016.

D&S commenced this action for breach of contract in March of 2016, alleging that Wenger had not paid D&S the amount due under the subcontract.  Wenger moved to dismiss the complaint based on the reduced contractual time limitation period, arguing that the lawsuit was time-barred because it was not commenced within one year of the date of D&S’s substantial completion of its work. The trial court granted Wenger’s motion to dismiss D&S’s lawsuit based on the expiration of the contractual time limit for D&S to commence a lawsuit, which was within one year after D&S’s substantial completion of its work in June of 2012.

Appellate Decision

On appeal, D&S argued that the one-year limitations provision beginning upon substantial completion should not be enforced because it is unfair and unreasonable.  According to D&S, it was unable to bring any claim within a year of substantial completion because the final payment was not yet due from Wenger as the SCA had not yet confirmed the credit or provided payment to Wenger.

The Court pointed out that the subcontract provided that payment from the SCA to Wenger was a condition precedent to payment by Wenger to D&S, and that the final payment amount was subject to any credit changes as determined by the SCA.  Here, the SCA did not sign off on the credit and final approved change orders for the asbestos work performed by D&S until June of 2016.  Therefore, it was impossible for D&S to bring any claim for breach of contract within one year of substantial completion as final payment was not yet due from Wenger because the SCA had not yet confirmed the credit or provided payment to Wenger.

Comment

As the D&S court held, “[t]here is nothing inherently unreasonable about the one-year period of limitation, to which the parties here freely agreed”. In fact, the July, 2017 Attorneys’ Column reported a case where the court enforced an agreed upon six-month contractual limitation period. However, an analysis must be undertaken as to whether the shortened limitations period is fair and reasonable, and whether it still provides a claimant with redress for its claims. Where the accrual date for the claim and the dates for the performance of any conditions precedent to payment are not specifically linked, there is a danger that, as occurred here, the time to sue on the claim would have run before the claim itself accrued. As the D&S court reminds us, courts will not enforce an unreasonable limitation period, even if contractually agreed to by the parties.

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