Supporting the Freedom of Parties to Contract to Shorten the Time Within Which to Bring Claims
The issue before the Massachusetts Supreme Judicial Court in this case was whether business parties could, by agreement, shorten the limitation period for actions arising out of their contract. The question was certified to the SJC by the U.S District Court for the District of Massachusetts. It arose out of a dispute between a franchisor and the defendant, the former franchisee, which resulted in federal court litigation.
After the franchisor sued the defendant for breach of the franchise agreement and other wrongs, the latter counterclaimed. Relying on a provision in the agreement that mandated a shorter limitation of action period than the six-years provided by the relevant statute of limitations, the franchisor moved to dismiss the counterclaims as untimely. This was, naturally, opposed by the franchisee. After concluding that there existed no Massachusetts precedent generally establishing whether such a contractual provision should be honored, the federal Magistrate Judge certified the question to the SJC.
Rather than thoroughly researching Massachusetts law on the question presented, the parties’ briefs concentrated on their differing interpretations of four relatively recent Massachusetts appellate decisions, each of which the franchisor said supported its contention that such private agreements are enforceable under Massachusetts law. Concerned by the paucity of thorough legal research and concerned, as always, with the protection of business parties’ freedom of contract, NELF filed an amicus brief in support of the franchisor. In its brief, NELF demonstrated that the right of parties to contract for a shorter limitation period was discussed and recognized by the SJC as early as 1856 in an insurance case. NELF then traced subsequent 19th and early 20th century decisions of the Court that recognized the principle in a number of contexts and treated it as a general principle of contract law.
In its amicus brief NELF also corrected a number of the defendant’s misunderstandings of Massachusetts law, including the Massachusetts version of the UCC. NELF then explained that, contrary to the defendant’s contention, such contractual limitations periods do not violate public policy ipso facto even when the period for suit lapses before a claim accrues; such contractual periods merely mirror statutes of repose, which the SJC has enforced as lawful despite their operating in precisely a similar fashion. NELF concluded by emphasizing to the Court the importance to commercial parties of having this particular form of freedom of contract as a tool to limit exposure and control costs, and it asked the Court to take the opportunity afforded by the case to clarify the rule of contract law underlying its previous decisions.
In its decision issued on November 21, 2012, the SJC agreed with NELF’s analysis, citing many of the cases brought to its attention by NELF. Noting that, despite its application of the principle in the past, it had never expressly stated a general contract rule, the SJC pronounced that “[w]hen a claim arises based on a contract, and the contractually shortened limitation period is reasonable and not contrary to other statutory provisions or public policy,” the shortened limitation period is enforceable as a matter of Massachusetts law.
The issue before the Massachusetts Supreme Judicial Court in this case was whether business parties could, by agreement, shorten the limitation period for actions arising out of their contract. The question was certified to the SJC by the U.S District Court for the District of Massachusetts. It arose out of a dispute between a franchisor and the defendant, the former franchisee, which resulted in federal court litigation.
After the franchisor sued the defendant for breach of the franchise agreement and other wrongs, the latter counterclaimed. Relying on a provision in the agreement that mandated a shorter limitation of action period than the six-years provided by the relevant statute of limitations, the franchisor moved to dismiss the counterclaims as untimely. This was, naturally, opposed by the franchisee. After concluding that there existed no Massachusetts precedent generally establishing whether such a contractual provision should be honored, the federal Magistrate Judge certified the question to the SJC.
Rather than thoroughly researching Massachusetts law on the question presented, the parties’ briefs concentrated on their differing interpretations of four relatively recent Massachusetts appellate decisions, each of which the franchisor said supported its contention that such private agreements are enforceable under Massachusetts law. Concerned by the paucity of thorough legal research and concerned, as always, with the protection of business parties’ freedom of contract, NELF filed an amicus brief in support of the franchisor. In its brief, NELF demonstrated that the right of parties to contract for a shorter limitation period was discussed and recognized by the SJC as early as 1856 in an insurance case. NELF then traced subsequent 19th and early 20th century decisions of the Court that recognized the principle in a number of contexts and treated it as a general principle of contract law.
In its amicus brief NELF also corrected a number of the defendant’s misunderstandings of Massachusetts law, including the Massachusetts version of the UCC. NELF then explained that, contrary to the defendant’s contention, such contractual limitations periods do not violate public policy ipso facto even when the period for suit lapses before a claim accrues; such contractual periods merely mirror statutes of repose, which the SJC has enforced as lawful despite their operating in precisely a similar fashion. NELF concluded by emphasizing to the Court the importance to commercial parties of having this particular form of freedom of contract as a tool to limit exposure and control costs, and it asked the Court to take the opportunity afforded by the case to clarify the rule of contract law underlying its previous decisions.
In its decision issued on November 21, 2012, the SJC agreed with NELF’s analysis, citing many of the cases brought to its attention by NELF. Noting that, despite its application of the principle in the past, it had never expressly stated a general contract rule, the SJC pronounced that “[w]hen a claim arises based on a contract, and the contractually shortened limitation period is reasonable and not contrary to other statutory provisions or public policy,” the shortened limitation period is enforceable as a matter of Massachusetts law.
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