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SJC Holds that Contractually Shortened Limitations Periods May Be Enforceable

The Supreme Judicial Court (“SJC”) analyzed the issue of the general enforceability of contractually shortened statutes of limitations in Creative Playthings Franchising Corp. v. Reiser, 463 Mass. 758 (2012).

In Creative Playthings, the defendant, James Reiser, entered into a franchising agreement with Creative Playthings to operate a Creative Playthings franchise store in Florida.  The agreement was executed in Massachusetts and the parties stipulated that the agreement would be interpreted and governed under Massachusetts law.  Section 6.09 of the agreement contained a Limitation Clause stating the parties agreed to a shortened limitations period for claims arising in connection with the agreement.

In July 2009, Creative Playthings terminated its agreement with Reiser and filed suit against Reiser in U.S. District Court.  Reiser in turn filed a counterclaim against Creative Playthings alleging, among other things, breach of implied covenant of good faith and fair dealing.  Thereafter, Creative Playthings moved for summary judgment on Reiser’s claims alleging they were time barred under the limitations provision in the franchise agreement.

The District Court judge declined to decide Creative Playthings’ motion stating: “Massachusetts [S]tate courts have yet to decide ‘the question of whether contractually shortened statutes of limitations are generally enforceable under Massachusetts law.’” The judge then certified that question to the SJC.

In analyzing this issue, the SJC reviewed long-standing common-law principles and Federal law on the issue.  As early as 1856, the SJC has held that contractually limiting the time in which claims could be brought in contract cases is valid.  See Amesbury v. Bowditch Mut. Fire Ins. Co., 6 Gray 596 (1856).  Further, the SJC accepts the view under Federal law that it is permissible for contract provisions to shorten the statute of limitations so long as they are reasonable in the particular circumstances.  In addition, they must not be contrary to public policy.

The SJC made clear that a contractual lessening of a limitations period that is unreasonable or which was not negotiated by the parties to the contract, such as a contract of adhesion, will not be enforceable.  In addition, if the contractually shortened limitations period is contrary to other statutory provisions, for example, G.L. c. 175, § 22 (where the Legislature forbid limiting the time for commencing actions against an insurance company to a period of less than two years from the time when the cause of action accrues), it will not be valid.

Thus, the SJC ultimately held that a limitations period in a contract shortening the time within which claims must be brought is valid and enforceable under Massachusetts law provided that: 1. The claim arises under the contract, and 2. the agreed-upon limitations period is (a) subject to negotiation by the parties, (b) is not otherwise limited by controlling statute, (c) is reasonable, (d) is not a statute of repose, which would limit the time within which an action may be brought without taking into account when the cause of action accrued, and (e) is not contrary to public policy.

This ruling provides an opportunity for contracting parties to protect themselves from actions that could otherwise be filed years after they completed performance of a contract. For example, subcontractors could try to negotiate for contractual provisions that would protect them from indemnity actions that might otherwise be filed years after the subcontractor completed its work.  In addition, contractors could contractually limit the time period in which purchasers of real property could bring breach of warranty claims against them following the completion of their work.

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