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Kent Holland, Esq. and James Rhodes, Esq.

A federal court in Maryland granted the dismissal of several counts against the builder of a residential home in Maryland due to a contractually agreed upon shortening of the time otherwise available to file suit .  The provision stated that all causes of action falling outside of the contract’s “limited warranty” would be valid only if brought within one year of the property’s closing.  The court cited to the general policy in Maryland of allowing parties to bargain for the scope of liability and found this limitation to be reasonable, dismissing breach of contract, negligence and fraud claims.  Savage v. Centex/Taylor, LLC, Civil Action No. RDB-11-2134 (D. Md. Mar. 19, 2012)

Craig Savage entered into a contract in 2007 with Centex/Taylor, LLC for the construction and purchase of a single-family home in Berlin, Maryland.  This “New Home Sale Agreement” included a limited warranty for the repair and replacement of certain aspects of the construction.  However, the same provision indicated that all contractual and tort claims falling outside the scope of the limited warranty must be brought against the builder within one year of the date of closing.  This provision expressly stated that the parties “waive all application of the so-called ‘discovery rule’”, a common law legal doctrine that sets the start of the statute of limitations period at the time the damage is discovered, or reasonably should have been discovered.

In the year following closing, the homeowner alerted the builder of structural defects in the home’s construction.  The builder initially attempted to fix the problems, but ceased to do so after the company experienced financial difficulty.  The homeowner eventually sued the builder on numerous grounds over three years after closing, alleging a breach of contract, breach of warranties, negligence, fraud and negligent misrepresentation.  The amended complaint also included an additional count for breach of a statutory warranty for newly built homes, section 10-203 of the Real Property Article of the Maryland Code.  Originally brought in circuit court in Worcester Court, the case was removed to federal district court in Maryland.

The builder sought dismissal of all counts, except for claims based on breach of the contract’s limited warranty, due to the expiration of the one year period from the contract’s limitation on liability provision.  The court explained that under Maryland law, clear exculpatory causes—i.e. contractual limitations on liability—are generally valid, absent any legislation holding otherwise.  The court then stated more specifically that contractually shortened time limits on bringing lawsuits are valid, provided the limitation is reasonable.

The court found that the one year limitation here was reasonable, and dismissed the non-warranty counts.  With respect to the added count for breach of the Maryland statutory warranty for new home construction, the court explained that these implied statutory warranties cannot be modified by contract.

The case serves as a reminder that Maryland courts, and courts elsewhere, are likely to enforce limits of liability, even if they give the plaintiff significantly less recourse than would otherwise be available under statute.  Here, the provision limited the overall period of bringing claims to one year and “started the clock” at closing, as opposed to the usual discovery of the injury or damage.  However, the case also shows that certain statutory warranties available to the plaintiff—in this case section 10-203 of the Real Property Article of the Maryland Code—will be unaffected by the contractually shortened period.

 

About the author: Article written by J. Kent Holland, Jr. Esq., and James Rhodes, Esq.

Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 16, No. 5 (May 2014).

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