Supreme Court deconstructs contractual limitation in residential construction contracts.
Tadych vs. noble ridge construction inc.
On October 27, 2022, in Tadych v. Noble Ridge Construction, Inc., the Washington State Supreme Court dismantled the use of a one-year contractual limitation in residential construction contracts.
Gregory and Sue Tadych contracted with Noble Ridge Construction to build a custom home. Like many residential construction contracts in Washington, Noble Ridge’s contract contained several limitations and exclusions of warranties implied by law, as well as a one-year limitation period for filing suit based on construction defects.1 In April 2014, Noble Ridge completed construction and the Tadychs moved into their new home. Shortly after moving in, it appeared the home had shifted and the flooring became uneven. They consulted a construction professional to assess the issues, who uncovered several construction defects. However, the Tadychs did not file suit against the contractor until 2017, over two years after the contractual limitations period expired.
Equipped with the decisions of several past cases where courts had enforced limitations periods of this nature, the contractor sought dismissal of the Tadychs’ claim through summary judgment. The trial court dismissed the suit, finding it time-barred by the contractual limitations period. The Court of Appeals agreed. However, bringing about what may be viewed by some as a demolition of existing Washington law, the state Supreme Court reversed, not only disagreeing with the Court of Appeals, but finding that the one-year limitations period was unenforceable (for the lawyer-readers: substantively unconscionable).
The Supreme Court’s rationale was based on overarching considerations of fairness, assessment of the bargaining power between the parties, and the reality that enforcing the limitations period would effectively deprive the Tadychs from the six-year limitations period that would otherwise be available to seek relief for defective construction under state law.2 In a succinctly and aptly stated conclusion, Associate Chief Justice Charles Johnson reasoned “[a] contract provision becomes substantively unconscionable when it eliminates otherwise established statutory rights and is one sided, benefiting the contract drafter, is also not prominently set out in the contract, is not negotiated or bargained for, and provides no benefit to the affected party.”
All in all, the decision in Tadych is going to disrupt the residential construction industry. This is clear from Chief Justice Gonzales’ dissent, which hotly contests the majority’s reasoning and opinion. At the very least, Tadych signals to residential homebuilders and contractors that if a limitations provision which significantly reduces the 6-year limitation period applicable under state law has any chance of being enforced, it will need to be conspicuously noted in the contract and contain evidence that it was bargained for or negotiated by the homeowner. For new homeowners, Tadych provides a strong argument that any limitations periods in contracts that reduce or eliminate homeowners’ statutory rights may not be enforceable.
1 In pertinent part, the limitation at issue provided “Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion as defined above, whichever comes first.”
2 RCW 4.16.310 states “All claims or causes of action as set forth in RCW 4.16.300 shall accrue, and the applicable statute of limitation shall begin to run only during the period within six years after substantial completion of construction, or during the period within six years after the termination of the services enumerated in RCW 4.16.300, whichever is later.”