In Ceccone v. Carroll Home Services, LLC, 454 Md. 680, 165 A.3d 475 (2017), the Court of Appeals set forth the criteria for determining whether parties to a contract may reduce the statute of limitations that would otherwise apply.
Richard and Daphne Ceccone entered into a residential furnace maintenance agreement with Carroll Home Services, LLC. The agreement contained a provision that changed the statute of limitations that would have been applied by law (three years) to one year. As might be expected, the Ceccones had a complaint with Carroll and filed a suit more than one year but less than three years after the service by Carroll.
The litigation started in the District Court for Anne Arundel County, where the Ceccones’ action was dismissed because of the limitations provision in the agreement. The case had a similar fate in the Circuit Court for Anne Arundel County. The Ceccones appealed to the Cout of Special Appeals, but the Court of Appeals issued a writ of certiorari before the Court of Special Appeals took any action on the case.
The Court of Appeals noted that statutes of limitation are not ordinarily jurisdictional. The court pointed out that parties may lengthen them by waiving limitations or by agreeing to toll the period of limitations for a particular claim that might otherwise become barred. The court held that a reduced statute of limitations would be enforceable only if all three of the following conditions are met:
(1) there is no controlling statute that prohibits shortening the statute of limitations;
(2) the provision is not the result of fraud, duress, misrepresentation, or the like; and
(3) the provision is reasonable.
As to whether a reduction of a statute of limitations is reasonable, the court said that the totality of the circumstances must be considered. The factors include the length of the shortened limitations period, particularly compared to the statutory period; the relative bargaining power of the parties; the subject matter of the contract; whether the shortened limitations period applies only to claims brought by one of the parties or is equally applicable to both parties; and whether it also applies to claims of negligence and intentional torts as well as to contract claims.
The Court of Appeals vacated the decision of the circuit court and remanded the case for trial in accordance with the guidelines set out in its opinion.
PRACTICE NOTE: We often see in contracts for the purchase and sale of commercial real estate relatively short limitations periods for certain matters. For example, a clause might state that any action alleging a breach of a representation stated in the contract must be brought within one year of the closing date. We would expect that such limitations would be generally enforceable because the rule in Maryland is that terms of a contract of sale merge with and into the deed unless there is a provision stating that a particular clause (or all of the contract) survives closing. In the situation posited above, a one year limitations period may actually be a year longer than would be otherwise allowed -- although a disgruntled buyer will contend that the statutory three-year period has been reduced to one year.
For questions, please contact Ed Levin (410) 576-1900.