Contractual Limitations Period Must Have Clearly Identifiable Starting Point

Many construction-related contracts contain a contractual period of limitations — a contract term that establishes a period of time during which a party must file a claim against the other party (“limitations provision”).  Such a contractual provision precludes an aggrieved party from filing a lawsuit after the period expires.   They are generally enforceable in Georgia.

In Carrier Corp. v. Rollins, Inc., the Court of Appeals of Georgia interpreted a limitations provision contained in a $2 million contract for installation of an HVAC system at the owner’s headquarters.  The owner filed suit alleging that the HVAC system installed by the contractor never functioned properly. 

The HVAC contractor argued that the contractual limitations provision barred the owner’s claims.  It read as follows:

Any suits arising from the performance or non-performance of this Agreement, whether based upon contract, negligence, strict liability or otherwise, shall be brought within one (1) year from the date the claim arose.

Based on the provision, the contractor argued that “the claim arose” upon “substantial completion” of the work.  Under the contractor’s interpretation, the claim arose when the contractor’s personnel initially left the project site, and the owner’s claim was therefore untimely.

In response, the owner countered that the contract did not define “substantial completion,” and that the contractor’s personnel returned to assess and work on the malfunctioning system much later.  Under this interpretation, the lawsuit was timely filed.

In resolving the dispute, the court considered the work called for under the contract, namely, a “complete operational system.”  It further ruled that the evidence demonstrated the work did not produce a “complete operational system.”  In addition, the court focused on the absence of acceptance of the work.”  The owner “could not have maintained a successful cause of action, as [the contractor] was still performing on the contract.”  Accordingly, the owner’s claim was timely.

The takeaway from the case is that, while limitations provisions are generally enforceable, they must have a clearly identifiable starting point.  Otherwise, a jury will attempt to fill the gap — occasionally producing wildly unexpected results.


 

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