A Shortened Statute Of Limitation - How Low Can You Go?
Case law is replete with examples of shortened periods of limitation: one year is common; 6 months is allowed; even 90 days has been upheld as a reasonable period of limitations on certain municipal contracts.
In a recent case, a contractor included a provision in its subcontract shortening the period of limitations to “one year from substantial completion.” The subcontractor achieved substantial completion in 2012 and started an action for its contract balance in 2016. The contractor moved to dismiss the case as having been commenced after the period of limitations expired. It lost!
Here’s the rub: The subcontract also provided that the subcontractor’s right to payment didn’t accrue until the contractor received payment from the owner, the NYC School Construction Authority. Because the SCA did not evaluate change orders and credits, or make payment to the contractor, until 2014, the period of limitations to sue for its money would have expired even before the subcontractor was entitled to the money. In other words, the limitation period in the subcontract conflicted with the payment provision, acting to nullify any claim the subcontractor might have had. Under those circumstances, the court held the one-year limitation period to be unenforceable.
The court reiterated that “there is nothing inherently unreasonable about the one-year limitation period to which the parties freely agreed.” But the problem wasn’t with the duration, the problem was with the accrual date, i.e., when the clock started ticking. Because the circumstances would have had the limitations period run out before the claim could be brought, it was held to be unenforceable.
The takeaway? Shorten the limitations period all you want. Just be sure that there is no other impediment to letting the clock start ticking on the bringing of the claim.