HOW NOT TO LOSE THE STATUTE OF LIMITATIONS

DEFENSE - PART TWO

This article is the second in a two part series regarding the applicable statute of limitations for claims arising out of defective improvements to real property, what builders can do to lose the protection of the statute of limitations, and how to avoid forfeiting the statute of limitations defense. The first article in this series explained the statute of limitations, and this article will inform contractors what actions to avoid so that they do not lose the ability to assert the statute of limitations defense.

A legal theory called "estoppel" has been used by Minnesota courts to allow consumers to assert claims against contractors for construction defects even where lawsuits are initiated more than two years after the discovery of the injury. These claims should be barred by the statute of limitations, however, the Courts have stepped in to prevent the contractor from asserting the statute of limitations defense in certain circumstances.

The courts have allowed consumers to invoke the doctrine of estoppel to prevent a contractor from asserting the statute of limitations defense where the consumer proves that the contractor made promises or inducements that the consumer reasonably relied on to not start a lawsuit within the two year period. The question which must be answered is, "what kinds of promises or inducements does a contractor make that gives rise to the court finding estoppel?"

Minnesota courts have recently ruled that where a contractor promises to fix a defect, and does not - for whatever reason - and the consumer relies on the contractor's promise to fix the defect and does not start a lawsuit within the two years, the contractor can be prevented from asserting the statute of limitations as a defense. Practically, this recent application of estoppel presents difficulties for contractors who attempt to remedy warranty items at the request of customers. Naturally, it is in both the contractor's and customer's interest for the contractor to remedy defects and avoiding a lawsuit. It is important to understand a contractor can act to repair or remedy defects without losing its ability to assert the statute of limitations defense, but certain statements or representations must be avoided.

First, when presented with notification of a construction defect, whether orally or in writing, the contractor should open a file documenting the complaint and all communications between the contractor and the customer. Second, the contractor should not promise that it knows how to repair the problem or that it can make the repair. Also, the general contractor should deny responsibility for defects attributable to the defective materials and/or labor supplied by a subcontractor (even if the general attempts a remedy).

In a 1999 Minnesota case, Oreck v. Harvey Homes, Inc., the court found that although Harvey Homes sent its representative to caulk around the Orecks' windows and perform other minor repairs, Harvey Homes consistently denied any responsibility for the air and water leakage and made no promises to repair the problems. In holding Harvey Homes should not be estopped from asserting the statute of limitations as a defense, the court stated, "There is no evidence Harvey Homes explicitly promised the Orecks it would repair the problems, and there is no evidence Harvey Homes induced Orecks to delay the filing of their Complaint."

While contractors should attempt to resolve customer complaints, they must remain mindful of the representations that are made, and the potential consequences of unfulfilled promises.

©2003, Rinke-Noonan and Ryan J. Hatton, St. Cloud, Minnesota.

Ryan J. Hatton is licensed to practice law in the Minnesota State and Federal Courts. He is a qualified neutral arbitrator by the Minnesota Supreme Court and currently serves on the SNBA governmental affairs committee.