Contracting parties in the know are aware that the statute of limitations for breach of contract is six years. But a recent appellate decision reminds us that the parties can shorten that period quite a bit.
 
A subcontractor that was owed money by the general contractor started a lawsuit in the Supreme Court of Nassau County, looking to collect an outstanding balance of $48,375. The action was started well within the six-year statute of limitations created by the New York State legislature for breach of contract actions.
 
What the subcontractor overlooked was that its subcontract provided that all actions must be commenced within one year of completing its work. The subcontractor argued that such a shortening of the period of limitations was unenforceable because it was (i) unreasonable, and (ii) the contract was a “contract of adhesion” (i.e., an unfair, one-sided contract presented on a “take it or leave it” basis).
 
The court rejected both arguments. Parties to a contract are permitted to shorten the six-year statute of limitations (although they may not lengthen it). Some cases have permitted the period of limitations to be shortened to as little as 90 days. A one-year period has often been found to be reasonable. As for the contract of adhesion, that is an argument that almost never succeeds. Sophisticated parties are free to negotiate whatever terms they see fit, and if they are not happy with those terms they are free to walk away from the deal.
 
Finally, the subcontractor sought to collect under another theory—quantum meruit—which basically ignores the contract (and in the process the shortened period of limitations applicable to contracts) and attempts to collect the “fair and reasonable value” of its services. However, the court held that where an express contract governed the relationship one could not simply ignore it and pursue a quantum meruit theory. The period of limitations remained one year from the completion of work, and the subcontractor’s claim was extinguished.
 
Once again, the moral of the story is: read your contract before it is too late.


Contact GDB Construction Law attorney Randy J. Heller, Esq. for more information.