Contract Provisions Shortening the Statute of Limitations Are Enforceable . . . Sometimes
November 20, 2017 By Matthew J. Gannett
Generally, the statute of limitations for a contract claim is three years. However, the Maryland Court of Appeals recently found that contract provisions shortening limitations periods are enforceable, but not strictly enforceable. In Ceccone v. Carroll Home Servs., LLC, the Court of Appeals found that contractual provisions shortening the limitation period may be enforceable where (1) there is no controlling statute to the contrary, (2) the provision is not subject to defenses such as fraud, duress, or misrepresentation, and (3) the provision is reasonable considering “the totality of the circumstances.” 454 Md. 680, 165 A.3d 475 (2017). However, with contractually reduced limitations, enforcement will depend upon reasonableness.
In Ceccone, Plaintiffs entered into a maintenance agreement with Carroll Home Services (CHS) for the maintenance of the Plaintiffs’ oil-fueled home furnace. Included in the General Terms and Conditions of the agreement was a provision that stated, “[a]ny and all actions, whether based in contract or tort, whether for personal injury or property damage, and whether brought by Buyer or Buyer’s insurance company, must be commenced within one year of the cause of action or shall be barred as a matter of law.” In April of 2014, there was an incident with the furnace, which Plaintiffs claimed was caused by faulty maintenance. On December 24, 2015, Plaintiffs filed an action alleging that CHS improperly maintained the heating system, and that such improper maintenance was fraudulent and a breach of the contract. CHS moved the trial court to dismiss the action as barred by the contractual limitations period. Plaintiffs argued that they “entered into the contract . . . as a result of believing that [CHS was] properly licensed” and that the period was not reasonable. The trial court dismissed the case.
The Court of Appeals found that the Circuit Court erred because it did not adequately consider whether the contractual limitations period was barred by misrepresentation or whether the provision was reasonable. The Court held that a contract provision that shortens the time for bringing a civil action is enforceable only if: (1) there is no statute to the contrary; (2) the provision is not subject to defenses such as fraud or misrepresentation; and (3) the provision is reasonable in light of all of the circumstances. The Court provided the following factors to consider in determining the reasonableness of the provision: (A) the length of the shortened period and its relation to the statutory period; (B) the bargaining power of the parties; (C) the subject matter of the contract; (D) whether the shortened period applies only to claims brought by one of the parties; and (E) whether the provision applies equally to claims of negligence and intentional torts.
The Court found that the Circuit Court should also have considered Plaintiffs argument that CHS was not properly licensed as a defense to the shortened limitations provision based on fraud or misrepresentation. Interestingly, Plaintiffs did not argue that there was any misrepresentation specific to the limitations provision, but rather that the misrepresentation as to licensure induced the contract—under which Plaintiffs were bringing suit—as a whole. Moreover, the Court indicated that the Circuit Court did not adequately consider the totality of the circumstances to determine if the limitations provision was reasonable. While the Court did not render an opinion on this matter, the Court of Appeals rewarded, for consideration of the several elements bearing on the reasonableness of the shortened limitation and the circumstance of how it was derived.
In sum, while parties are free to contract to shorten the limitations period, such provisions will be subject to the fickle, “totality of the circumstances” test. Parties cannot expect strict enforcement of such contractual limitations periods, particularly when a commercial litigant seeks to enforce such provisions against individual consumers. In order to increase the likelihood that such provisions will be enforced, entities should ensure that such provisions are prominently displayed on the contract, apply equally to both parties, and do not apply to intentional torts.