New York’s statute of limitations provides a deadline of six years for when a lawsuit for breach of contract must be filed. The clock normally starts to run when the claim arises; in other words, at the time when the plaintiff has a claim or basis to sue. What is not commonly known is that the parties, by contract, can shorten the six year limitations period—provided the shorter period is reasonable.
In the recent case of D&S Restoration, Inc. v Wenger Construction Co., Inc., the court addressed the issue of the validity of a contractually agreed upon one-year statute of limitations period included in a construction contract.
In January of 2011, Wenger entered into a contract with the New York City School Construction Authority to perform construction at P.S. 29 in Staten Island. Two months later, Wenger and D&S entered into a subcontract for D&S to perform certain required asbestos abatement work at the project. The subcontract between Wenger and D&S provided that “No action or proceeding shall lie or shall be maintained by Subcontractor against Contractor, CM, or Owner unless such action shall be commenced within one (1) year after Substantial Completion of Subcontractor's work herein or, if this Subcontract is terminated unless such action or proceeding is commenced within six (6) months after such termination.” The contract also provided that “final payment to Subcontractor shall be made after completion and acceptance of the premises by Contractor & Owner of Subcontractor's work, documentation and acceptance and payment thereof by the CM/Owner”, and that “receipt of payment from the CM/Owner for the Subcontractor’s work is a condition precedent to payment by the Contractor to the Subcontractor * * * [p]ayment of this amount is subject to additions or deductions within the provisions of this Subcontract and the other documents to which this Subcontract is subject”.
D&S’s last work on the project was on June 11, 2012. The SCA certified that the project was substantially complete on October 5, 2012, and signed off on the completed work in December of 2012. Accordingly, under the one-year limitations provision of the subcontract, the time to sue ran out on October 5, 2013—one year after substantial completion. However, under the payment terms of the subcontract, because final close-out negotiations were not complete until June 24, 2016, the date on which the SCA signed off on various credits, D&S’s payment was not due until then. Consequently, according to D&S, the one-year time limit to sue was triggered on June 24, 2016 and not the substantial completion date.
When D&S commenced a lawsuit to recover the unpaid balance, Wenger moved to dismiss, arguing that D&S’s lawsuit was barred by the contractual one-year limitations period ending on October 5, 2013. D&S opposed, arguing that the limitations period was unreasonably short in light of the need to comply with the payment terms of the contract. D&S was forced to wait for final negotiations between the SCA and Wenger to be completed on June 24, 2016 before it was entitled to be paid under the subcontract. Therefore, it was impossible for D&S to bring a claim within the one-year window that closed on October 5, 2013.
The court dismissed D&S’s lawsuit, relying upon the one year limitations period in the subcontract. According to the court, since it was common knowledge in the construction industry—and admitted by D&S’s counsel—that there can be an extended period of work and payment negotiations after the certification of substantial completion, those events making it impossible to timely bring its claims within the one-year limitation period were in fact foreseeable by D&S. The court held that impossibility excuses a party’s performance (timely bringing its claim) only where the “impossibility [is] produced by an unanticipated event that could not have been foreseen or guarded against in the contract”.
The D&S Restoration court relied on long standing case law to hold that where a party makes a claim that performance was impossible, it must establish that the impossibility was unforeseeable or unanticipated. In doing so, the court did not see the need to reconcile the two seemingly conflicting provisions of the contract, the one that started the one-year limitation clock running upon substantial completion, and the other which required the subcontractor to await the general contractor’s close-out negotiations with the owner before getting paid.
Counsel for D&S informed the author that D&S will file an appeal from the court’s decision. We will report the appellate court’s decision to you in a future column.