Court Holds 6-Month Limitation Period “Unreasonable and Unenforceable”
It has long been established that parties to a contract may agree to shorten the statute of limitations. While the legislature has established 6 years as the period of limitations for breach of contract, contracting parties can shorten it considerably. Many municipal contracts permit only 90 days to commence an action, and in some instances, the period of limitations can consensually be shortened to as little as 30 days.
So it came as a bit of a surprise when the appellate court in Albany struck down a 6-month period of limitations in a subcontract for the construction of a residence hall for the Dormitory Authority of the State of New York (“DASNY”). DASNY had entered into a general contract with U.W. Marx, Inc. (“Marx”), which in turn entered into a subcontract with Digesare Mechanical (“Sub”). Following the completion of the project, and more than a year after its last day of work, Sub commenced an action against Marx seeking its contract balance. Marx defended by arguing that Sub’s action was time-barred, based on a provision in the providing that “any claim by [Sub] must be filed…within six (6) months after [Sub’s] last day of work on the project site.”
A betting man, with a familiarity with the case law, would have bet the ranch on the dismissal of Sub’s claim. It seemed open and shut—Sub commenced suit well more than 6 months after its last day of work. But Sub had an interesting argument up its sleeve.
Sub argued that while parties to a contract are free to agree in writing to shorten the 6-year statute of limitations, a shorter period which has the effect of terminating a claim even before it arises should not be enforced. It seems that Marx had brought a separate claim against DASNY which had not been resolved before the 6-month period expired. Sub’s subcontract provided that it would receive a payment within 7 days after Marx received payment from DASNY. Since Marx and DASNY had not yet settled, the 6-month period of limitations in the subcontract came and went before Sub was even entitled to receive payment from Marx. Any claim by Sub against Marx for its final payment before Marx received its own final payment from DASNY would have been dismissed as “premature.”
The appellate court held that under these facts, the enforcement of the shorter period of limitations would have been unreasonable. It held that a limitations period that expires before a suit can be brought is not really a limitation period at all, but simply a nullification of the claim. As such, it was unenforceable. The lower court’s dismissal of Sub’s claim was reversed, and the claim was reinstated.
This case potentially breathes new life into many cases ostensibly barred by short contractual periods of limitation contained in subcontracts. Never say die.