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Court Enforces Contract Providing that Statute of Limitations Runs from Substantial Completion Rather than from Discovery of Breach
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September 24, 2007
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Howrey LLP
Some laws and cases provide that statutes of limitation do not begin to run until the plaintiff discovers, or reasonably should discover, the facts giving rise to a cause of action. This is known as the discovery rule. A Pennsylvania court has held that parties may, by contract, agree that the limitations period begins to run from the time of substantial completion of a construction project rather than from the discovery of facts giving rise to a cause of action.
The contract at issue was between an architect and the owner of a Pennsylvania shopping center. A clause in it provided that the statute of limitations for any cause of action would begin to run from the date of substantial completion of the project (or, for acts or failures occurring after substantial completion, from the date of the issuance of the final certificate for payment). The provision was contained in the American Institute of Architect's standard form of agreement between an owner and architect, AIA B141:
Causes of action between the parties to this Agreement pertaining to acts or failures to act shall be deemed to have accrued and the applicable statutes of limitations shall commence to run not later than either the date of Substantial Completion for acts or failures to act occurring prior to Substantial Completion, or the date of issuance of the final Certificate for Payment for acts or failures to act occurring after Substantial Completion.
In 1993, the architect issued certificates stating that all structures in the shopping center were substantially completed. By 1998, every building, sidewalk, and parking area in the shopping center was damaged from subsurface earth movement.
The owner sued the architect, among others, asserting both breach of contract and tort claims. The architect defended against those claims on the grounds that the breach of contract claims were barred by a four-year statute of limitations and that the tort claims were barred by a two-year statute of limitations. The owner, in turn, argued that its claims were timely because they did not accrue and the statute of limitations did not begin to run until the damage became apparent.
The trial court rejected the owner's arguments and found that its claims against the architect were time-barred. The appellate court affirmed, holding that the language of the contract cut off both the contract and tort claims. Gustine Uniontown Associates, Ltd. v. Anthony Crane Rental, Inc., 2006 Pa. Super 12, 892 A.2d 830.
The court held that the provision was reasonable and that it did not shorten the statute of limitations. Rather, the provision simply made the date of substantial completion rather than the date of discovery the trigger to begin the limitations period. The court noted that other courts have examined these types of contractual accrual provisions, which effectively override discovery-based accrual, and uniformly upheld them.
The court noted the public policy of enforcing voluntary bargains. The court stated that the owner "was not an unversed and unrepresented consumer who could not understand this language. It is a sophisticated business entity fully capable of negotiating on even terms the provisions of its contracts with the benefit of legal counsel." The court further noted that "the contract at issue was a standard agreement for contracts between an owner and architect developed by the American Institute of Architects." The court's policy to "enforce clear contract language," therefore, allowed the architect to avoid contract and tort liability by invoking the contract's unambiguous accrual provision.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2007 Howrey LLP
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