California: Contractual Statute of Limitation Periods May Be Permissible Between Sophisticated Parties


The California Court of Appeals recently provided clarity as to whether parties are entitled to contractually agree to a shorter statute of repose period. In Brisbane v. Webcor, Plaintiff and Appellant Brisbane Lodging, L.P. recently appealed summary judgment granted in favor of Defendant Webcor Builders, Inc. and Webcor Builders (“Webcor”) in a construction defect case. In 1999, Brisbane contracted with Webcor to design and construct the Sierra Pointe Radisson Hotel. The parties were represented by counsel and engaged in extensive contract negotiations. Specifically, the parties negotiated the commencement of the statutory limitations period for work completed prior to substantial completion of the project. The parties ultimately agreed to abrogate the statutory 10-year limitations period in California (pursuant to Cal. Code Civ. Proc. §337.15) and agreed to a 4-year limitations period.

The Radisson construction was completed in July of 2000. In early 2005, a kitchen sewer line broke and caused waste to leak under the hotel. Webcor investigated the loss and determined that Therma, the plumbing contractor, caused the loss. Therma completed the necessary repairs by July 2005. However, in 2007, Brisbane notified Webcor and Therma of additional damages caused by incorrect installation of the plumbing during the original construction. Webcor notified Brisbane that Webcor and Therma considered the issues resolved. Brisbane disagreed and filed suit against Webcor in 2008. However, pursuant to paragraph in the original contract, the latest date upon which Brisbane could have commenced suit against Webcor was July 31, 2004, four years after the completion of the project.

The trial court granted summary judgment finding that the parties’ contract clearly and unambiguously abrogated the delayed discovery rule and the statutory 10-year limitation, making Plaintiff’s complaint, filed more than four years after the agreed-upon accrual date, untimely. The Appellate Court affirmed the judgment in favor of Webcor concluding that by tying the running of the statute of limitations to a specific date, the parties negotiated to “avoid the uncertainty of the discovery rule for the security of knowing the date beyond which they could no longer be exposed to potential liability.” Accordingly, the Court concluded that sophisticated parties should be allowed to “strike their own bargains and knowingly and voluntarily contract in a manner in which certain risks are eliminated and, concomitantly, rights are relinquished.”

Provisions such as paragraph are becoming more prevalent and enforceable through the AIA, particularly in commercial real-estate. The Appellate Court noted that court rulings from Maryland, Kentucky, New York and Wisconsin all recognized the enforceability of contract provisions modifying the delayed discovery rule. While the delayed discovery rules in California and other states were adopted to protect the “blamelessly ignorant,” it was not intended to protected sophisticated parties and no law prevents them from waiving it by contract. Similar to the Brisbane case, the courts in these cases enforced the provisions when both parties had legal counsel and were engaged in sophisticated commercial construction at the time. The lesson to learn from the Brisbaine decision is that courts are increasingly enforcing construction contract provisions abrogating statutory longer limitations periods when “the parties are on equal footing and where there was considerable sophisticated give and take over the terms of the contract,” reasoning that those parties should be given “the ability to enjoy the freedom of contract and to structure risk shifting as they see fit without judicial intervention.” Therefore, when sophisticated parties are represented by counsel, engaged in larger commercial constructions, and specifically negotiate their business risks, they should be prepared to get what they bargained for.

About The Author

Leave a Reply