New Jersey Court Holds Contract Clause Providing for Accrual of Statute of Limitations on Substantial Completion Cannot Be Circumvented By Application of Discovery Rule

Trinity Church v. Atkin
925 A.2d 720, 2007 N.J.Super.LEXIS195 (N,J, Super, App. Div., June 27, 2007)

Contractual clauses providing for the date of accrual on construction projects are valid in New Jersey. The Superior Court of New Jersey, Appellate Division, affirmed summary judgment in favor of defendants who allegedly performed defective renovation and construction work on a historical building because the plaintiff failed to file a timely action within the period of the statute of limitations.

Plaintiff, Trinity Church, contracted with the defendants—an architect and general contractor—for the renovation and construction of its historically certified church. Both contracts contained clauses that provided that the statute of limitation for any cause of action under the agreement would run from the date of the project’s Substantial Completion. The work was performed, and on August 1, 1997, the parties signed a certificate of substantial completion. In April of 2000, the Church noticed defects in the mortar work and notified the architect. To resolve the problem, the parties held a series of meetings to discuss possible causes of the problem as well as a solution. Consultants were hired to investigate. At the conclusion of the investigation in 2002, the consultants issued a detailed report to the parties, including the Church.

On September 13, 2004, two years after the report was issued and seven years after substantial completion, the church filed suit alleging various construction defects. Defendants filed a motion for summary judgment seeking dismissal because the statute of limitations had run pursuant to the contract clause. In response, the church amended its complaint and added additional defendants. The trial judge granted summary judgment in favor of the defendants, concluding that the Church bargained away its right to use the discovery rule as a means of avoiding the bar imposed by the statute of limitations when its signed the contract that included the clause stating claims accrued on substantial completion.

On appeal, the court upheld and enforced the contract provisions. Adopting the reasoning of several other states, including Pennsylvania and Maryland, the court stated that the purpose of these types of limitations clauses was to void the discovery rule for the accrual of a cause of action. In essence, the freedom to contract allowed parties to limit the timeframe for which they were potentially liable for construction defects.

Despite the fact that the architect’s and contractor’s contracts were governed by different states with different statute of limitations, the clause still applied since the action was not filed within the limit of either state’s statutes. On appeal, the church failed to challenge the contract clause itself, but argued that equitable principals dictated that the statute of limitations period should be tolled. While the court found the argument unpersuasive in this case, the court noted that these type of clauses are subject to equitable tolling in certain situations, particularly if a defendant acts improperly or conceals information from the plaintiff. Importantly, the court made clear that contractual clauses that limit the timeframe a plaintiff has to file suite, even if the problem is not yet discovered, are permissible in construction agreements.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

This entry was posted in General Contractor, Statute of Limitations and tagged , , . Bookmark the permalink.