Washington Supreme Court Finds a One-Year Contractual Limitations Period to Be Substantively Unconscionable

A recent 5-4 decision issued by the Supreme Court of Washington, Tadych v. Noble Ridge Construction, Inc., reflects the importance of carefully crafting claim limitation language in residential development and construction contracts.

The Tadychs entered into a written contract with Noble Ridge Construction, Inc. ("NRC"), to build a custom home. Among other clauses, the contract contained a lengthy warranty provision that required that any claim or cause of action arising under the contract, including one for breach of warranty, be brought within one year from the date of the owner's first occupancy of the home.

NRC completed its work and the Tadychs moved into the home in April 2014. Under the terms of the warranty provision, the Tadychs had until April 2015 to bring a claim against the contractor arising from the work performed on their home. In February 2015, the Tadychs began experiencing issues. At one point the home shifted. Shortly thereafter, the Tadychs discovered unlevel flooring. The family hired a construction expert to inspect the shifting and flooring issues. The expert additionally determined that the home's ventilation system was out of compliance with applicable codes.

The Tadychs met with NRC to discuss the issues. The contractor disputed the severity of the defects, but agreed to repair the unlevel flooring. However, the Tadychs continued to experience construction issues, and provided the contractor with notice of the problems on multiple occasions. While the contractor agreed to perform various repairs on the home, the repairs never took place. In early 2017, NRC became unresponsive to the Tadychs. The family hired another construction expert who determined that the home suffered from several construction defects, including water intrusion, code violations, poor structural framing, as well as poor structural ventilation.

The family filed suit against NRC for breach of contract in late 2017. NRC filed a motion for summary judgment because the Tadychs failed to bring a claim within one year of their initial occupation of the home. As such, NRC argued that the claim was time barred pursuant to the contractual limitations period. The trial court agreed, and the court of appeals affirmed.

Supreme Court Decision

However, the Supreme Court of Washington reversed the decision. The Court compared the one-year limitations period included in the contract against the six-year statute of limitations contained in RCW 4.16.310. The Court determined that the limitations period contained in the contract deprived the Tadychs of a substantially longer limitations period under applicable Washington law. Moreso, the shorter limitations period in the contract benefitted NRC, and did so at the expense of the Tadychs. The Court additionally focused on the Tadychs' status as "lay-persons" and noted that NRC drafted the contract to include the provision, and appeared to bury it in the middle of the warranty clause. Further, there was little indication that the limitations period was bargained for by the parties. Based on the foregoing, the Court found the contractual limitations period to be "substantively unconscionable." The Court ultimately rendered the clause void and unenforceable, finding the Tadychs' suit to be timely.

Takeaway

It is critical that residential contractors and developers consider the Tadych decision when drafting claim and warranty provisions in contracts with homeowners. The decision does not go so far as to hold that all shortened limitations periods are unconscionable. Still, a claims time-limitation provision of similar length to that considered in the Tadych decision could render the clause void and unenforceable. As a result, the contractor or developer would most probably be subject to claims within the full period allowed by applicable statutes of limitations instead of the limited period in the claims time-limitation provision.