Despite the fairly straightforward nature of the issue, before the recent case of Creative Playthings Franchising, Corp. v. James A. Reiser, Jr., the Massachusetts Supreme Judicial Court (SJC) had not categorically ruled whether parties to a contract could agree to shorten the six-year statute of limitations under G.L. c. 260, §2. We now have the answer, which is “yes,” but with some important caveats and limitations. Although the issue in this instance arose in the context of a franchise agreement, the SJC’s ruling applies equally to other types of contracts, including leases, purchase and sale agreements and other types of real estate and construction-related contacts.
G.L. c. 260, §2 sets a six-year statute of limitations for contract-based claims. Federal law generally allows parties to do shorten that time period by agreement. The SJC found no reason why Massachusetts law should differ from federal law on the issue. Specifically, the SJC ruled that, “where a claim arises based on a contract, and the contractually shortened limitations period is reasonable and not contrary to other statutory provisions or public policy, then the parties may agree to shorten the time period within which claims must be brought.”
The legislature has established a shortened limitations period for certain types of contracts (such as the four-year statute of limitations under the Uniform Commercial Code, G.L. c. 106, § 2-725(1)), and prohibited contractually shortened limitations periods such as in the case of insurance contracts (G.L. c. 175, § 22). Additionally, a contractually shortened limitations period in an adhesion contract (a contract whose terms are written by one party and typically offered on a “take it or leave it basis” – e.g., car rental contract, airline ticket, etc.) is unlikely to pass muster. The same is true of a shortened limitations period otherwise viewed as unreasonable or against public policy.
Finally, the Court held that the discovery rule, which tolls the statute of limitations until a perspective plaintiff learns or should have learned that she has been injured, cannot be overridden by agreement. Specifically, the Court held that “a contractual limitations provision that did not permit operation of the discovery rule would be unreasonable, and therefore, invalid and unenforceable.”
The takeaway from the SJC’s decision in Creative Playthings is that parties to negotiated contracts can provide for greater certainty and a shorter time period within which claims must be brought. However, the Massachusetts courts will carefully consider any such agreement to ensure that the it was negotiated at arm’s length and is not otherwise unreasonable or contrary to public policy.