The "Bargained-for" Result: Torts, Contracts, and Statutes of Limitation
Kenneth Slavens | June 1, 2005
One of the first things that is checked when a lawsuit is filed is whether it was filed within the statute of limitation. When a lawsuit is filed against a design professional the question of what statute of limitations applies often turns on whether suit alleges negligence or breach of contract.
The limitations applicable to contract actions are often not of the same duration as those applicable to tort action. The New York appellate court that analyzed a recent dispute provided some guidance to help understand when there is a real difference. The design professional may have a claim that it breached a contract only, or committed professional negligence, or both.
The Issue before the Court
In the case styled In Re: Application R.M. Kliment & Frances Halsband Architects, Petitioner-Appellant, 770 NYS2d 329 (2004), the court concluded that the question turned on whether there was a "bargained-for" result in the contract between the parties, or if the real issue was one of the quality of performance. The court was considering the question of whether a contractor's malpractice claim against an architect, whether framed as a breach of contract claim or a professional negligence claim, was barred by the professional negligence malpractice statute of limitations.
The New York statute of limitations that applies to claims against architects provides that an action to recover damages for malpractice must be commenced within 3 years, regardless of whether the underlying theory is based on contract or tort.
The courts in New York had often applied a longer 6-year statute of limitations that was applicable to breach of contract cases to disputes such as the one being addressed in the case at hand. However, the New York Court of Appeals held in this case that the liability of the defendant was determined by analyzing whether the claim was "verbalized as in tort for professional malpractice or as in contract for nonperformance of particular provisions of the contract" and, thereby, "arose out of the contractual relationship of the parties." The court had reasoned that absent the contract between the parties, no services would have been performed and, thus, there would have been no claims. That being the case, the question could not simply be answered by asking if a contract existed between the parties.
Factual Background
The parties had entered into an agreement for architectural and interior design services to be performed by the architect in connection with the construction of office space in a contractor's technology consulting group. The agreement provided that any claims, disputes, or breaches arising from or relating to the agreement were to be decided by binding arbitration.
The parties did not dispute that the project was completed and a certificate for occupancy of the premises was issued on November 3, 1998. The demand for arbitration was served by the contractor on the architect in April 2002. The architect filed suit in court asking that the court stop the arbitration from moving forward on the basis that the arbitration was filed after the 3-year malpractice statute of limitations, and, as a result, it was barred. At the trial court level, the request was denied, and this opinion was the result of the appeal from that denial.
In the demand for arbitration dated April 8, 2002, the contractor argued that the architect was responsible under the parties' contract for compliance with all laws, codes, ordinances, and other requirements applicable to the project, including compliance with the relevant building code, the requirement of the local Board of Fire Underwriters or similar body, and any permitting authority for the work. The demand went on that despite these requirements the architect had failed to specify fireproofing as required to comply with the applicable building code. As a result, the contractor claimed that it had incurred substantial additional expense to install the necessary fireproofing, after construction had been completed.
Analysis by the Court
The trial court had denied the architect's motion because it had concluded that the contractor was entitled to the 6-year statute of limitations for breach of contract. The trial court reasoned that the contractor had not claimed the architect committed malpractice, but that the architect failed to perform a specified contractual responsibility. The trial court reasoned that the 6-year statute of limitations was applicable where the claim is based on a "particular bargained-for result" as opposed to the architect being required "to comply with all applicable code provisions, in this instance, as to fireproofing."
The court of appeals acknowledged that a professional negligence action may theoretically rest on a breach of contract as to a particular bargained-for result. For example the court of appeals said that such an case may be where a physician not only agrees to perform an operation but promises to "cure" the patient, or an attorney agrees not only to represent a client but guarantees the result, this is not that rare kind of case.
However, the court of appeals concluded that the case under consideration was not the type of case where the parties have a bargained-for result. The bargained-for result here was not compliance with the applicable building code per se, but the furnishing of architectural and interior design services in connection with the project, which services—explicitly or implicitly—were to be performed in a professional, non-negligent manner. The court reasoned that the architect's alleged failure to comply with the applicable code provision, whether it was a breach of contract or tortuous in nature, is immaterial for purposes of the statute of limitation, since the resulting compliance is the same as the remedy sought.
The applicable statute of limitation "is properly related to the remedy, rather than to the theory of liability." The court also cited legislative history where the legislature that passed the applicable statute of limitations had reasoned that where the underlying complaint is one which essentially claims that there was a failure to utilize reasonable care, or where acts of omission or negligence are alleged or claimed, the statute of limitations shall be 3 years, if the case comes within the statute, regardless of whether the theory is based in tort or in breach of contract.
The court of appeals held that the malpractice statute was intended not only to remedy a line of cases that had made a distinction between the tort and breach of contract theories, but the intent was to also reduce potential liability of insurers and the corresponding malpractice premiums, as well as restore reasonable symmetry to the period in which all professionals will remain exposed to malpractice suits. The analysis and conclusion provides the predictability the statute was intended to provide.
Thus, the court of appeals held that the architect's application to stay the arbitration should have been granted, to reverse the trial court, and sent the case back to the directing the trial court to grant the stay of arbitration.
Conclusion
The specific holding of this case and the statute discussed has direct application only in the State of New York. However, the analysis provides a helpful framework to argue that the protection of a tort statue of limitation may be applicable even when the claim is set out as a breach of contract.
In addition, if the claim is framed as a breach of contract, but what we are really discussing is the standard of care, the issues of the need for expert testimony, allowable deviations, and all the other trapping of a tort claim come into play. This could be trap for the unaware.
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