A contract provision in a homeowner contract with a furnace maintenance company shortened from the statutory three years to just one year, the time period for bringing a claim against the company. The homeowner filed suit against the company more than a year after maintenance work was performed and the company filed a motion to dismiss the suit as untimely even though it was filed within the statute of limitations period. The Maryland Court of Appeals held that parties have freedom of contract to shorten the time period for filing suits and that a contractually shortened limitation period will be valid if (1) there is no statute prohibiting shortening the time period; (2) the provision is not the result of fraud, duress, misrepresentation; and (3) the provision is reasonable in light of all the pertinent circumstances. Ceccone v. Carroll Home Services, LLC, 454 Md. 680 (Maryland 2017).
Comment: Where state law permits it, we believe it to be good risk management practice to specify in the contract the time period for filing suit. This reduces the risk of uncertainty that a suit might be brought many years after a project has been completed.
In this case, the contract prepared by the maintenance company established a one year period for the homeowner to bring suit, but it did not place any time limit on the company suing the homeowner. That aspect did not trouble the court.
In reviewing the proceedings of the trial court, it was clear that the judge felt the homeowner could have negotiated something different if he wanted to, and must be stuck with the bargain he entered into. The owner argued that the shortened time period was unreasonable. The judge responded, “Well, sir, I don’t think I can get around the language of the contract. The contract is very clear that the action must be filed within one year. And that’s clear. You contracted that way and that’s part of the contract.”
The homeowner, who represented himself pro se (i.e., without an attorney) in this small claim matter pro se argued with the judge, saying, “But the statute of limitations is three years.” The judge responded, “That’s the general rule. But you can contract it out. You can contract and make it six months, three—30 days.”
The homeowner then argued, “Yeah. But would a reasonable person determine that that’s a reasonable amount of [time] – one year?” The judge responded, “Well, I’ve seen it before.”
Arguing further, the homeowner asserted, “what’s basically happened is, is the contractor is setting an arbitrary amount of time…” The court responded, “Well, you could have, when you entered into the contract, said, look, I’m not going to agree to one year. It’s got to be three years. You could have said that and then put that in the agreement. But you know what a contract is — being in the real estate business. Whatever is contracted for, you’re stuck with it.”
Maryland, as can be seen in this case, is a state that believes in freedom to contract what you will so long as it is not against the law or public policy. If you negotiate a bad deal, you will generally be stuck with it – subject to certain conditions that are explained in the decision.
Under Maryland law, there are a few code provisions that explicitly bar any effort to shorten a statute of limitations applicable to certain causes of action. But unless those provisions apply to a situation, Maryland courts honor the parties’ agreement to shorten the time period for filing suit if it is reasonable and if certain defenses to contract formation cannot be established.
Among the “factors to be considered in assessing reasonableness are the subject matter of the contract, the duration of the shortened limitations period compared to the period that would otherwise govern, the relative bargaining power of the parties to the contract, and whether the shortened limitations period is a one-sided provision that applies to one party but not the other.”
The court remanded the case back to the trial court to assess the reasonableness of the limitations shortening provision, and to consider evidence that the homeowner may produce concerning misrepresentation and fraud would undermine the validity of the shortened limitations period of in the agreement.
About the author: Article written by J. Kent Holland, Jr., 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. 20, No. 2 (Feb 2018).
Copyright 2018, ConstructionRisk, LLC