Stopping The Legal Clock

By Randy Sullivan

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The statute of limitations is a commonly used defense to any claim. But a California court recently took a step toward enforcing contractual modifications to the statute of limitations.

With the economy improving, and more deals being reached between sophisticated parties, it is as important as ever to ensure that the contract governing the party’s rights is properly vetted.

In the case of Brisbane Lodging, L.P. v. Webcor Builders, Inc., the court upheld a contract provision that provided that no claim could be brought four years after the substantial completion of the project’s construction. The underlying contract was for the construction of a Radisson Hotel.

Ordinarily, any claim based on a breach of contract must be filed four years from the date the contract claim accrued – the point at which a reasonable party knew or should have known that the other party to the agreement had breached the contract. This is an issue that is often a focal point of discovery in litigation between the parties.

It is an even greater issue for construction defect matters. If a defect is considered latent — it is not obvious — then the party may have up to 10 years to file a lawsuit under C.C.P. § 337.15.

The contract at issue in Brisbane for the design and construction of the Radisson Hotel limited that right. Specifically, the contract provided that the accrual date would be the date that the project was substantially completed. The question presented then for the first time, was whether such a provision could be enforceable in California.

In short, the court concluded that the parties to the construction contract for the Radisson Hotel decided to establish a set date from which any contract claim could accrue. The court made its ruling, even though the contractor had been called out and then did work to repair a sewer line more than six years after the parties entered the agreement. The problems apparently returned two years later.

Nevertheless, the court concluded that there were two critical reasons for upholding the limitation on when a lawsuit could be filed.

First, the parties were sophisticated, commercial parties developing property. That is to say, the contract did not involve a residential homeowner or buyer. Secondly, the contract did not seek to limit the time under which a lawsuit could be filed, such as a modification from four years to one year.

This decision, although limited, is important. Before a contract is signed, all of its terms and conditions should be carefully considered. After the contract is signed, and if a dispute arises, an attorney should be consulted to ensure that the statute of limitations does not expire.

A safe solution in most any construction matter is to have the parties enter into a tolling agreement stating that while the contractor is repairing an item the statute of limitations is not running. This serves to stop the clock, put the matter on ice, and give the parties time to reach a resolution instead of rushing to file suit.

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Randy Sullivan, a partner at Patton & Sullivan, specializes in business and real estate litigation. For questions or comments he can be reached at randy@pattonsullivan.com.

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