John J. Kassner & Co., Inc. v. City of New York, 46 N.Y.2d 544 (1979)
Parties can agree to shorten the statute of limitations in a contract, but agreements to extend it, made before a cause of action accrues, are generally unenforceable as against public policy.
Summary
John J. Kassner & Co. sued the City of New York for breach of contract, seeking payment for engineering work. The City raised a statute of limitations defense. The contract contained a clause requiring actions to be commenced within six months of the final payment certificate filing. Kassner argued this clause extended the statutory period. The Court of Appeals held that while parties can contractually shorten the statute of limitations, agreements to extend it, especially those made before a cause of action accrues, are unenforceable as they violate public policy. The action was time-barred.
Facts
Kassner, an engineering firm, contracted with New York City in 1967 to relocate utility facilities. The contract stipulated a lump-sum payment in installments, subject to the City Comptroller’s audit. After completing work, Kassner submitted a statement claiming a $39,523.69 balance. The Comptroller disallowed $38,423.69, authorizing only $1,100. Kassner protested the decision around July 1, 1968. After six years, on September 19, 1974, Kassner requested the undisputed $1,100 balance, which was paid. A certificate of final payment was filed on November 8, 1974. Kassner sued on April 18, 1975, seeking the disallowed amount.
Procedural History
Kassner sued in Supreme Court. The City asserted a statute of limitations defense. Kassner moved to dismiss the defense, relying on the contractual limitations provision; the City cross-moved for summary judgment. The Supreme Court granted Kassner’s motion and denied the City’s cross-motion, finding the contractual provision controlling. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
1. When did the cause of action accrue for statute of limitations purposes?
2. Can a contractual limitations clause that begins to run later than the statutory accrual date effectively extend the statute of limitations?
Holding
1. No, the cause of action accrued no later than July 1, 1968, when Kassner was informed of the Comptroller’s decision to disallow a portion of the claim, because that’s when the breach, if any, occurred.
2. No, because agreements to extend the statute of limitations made at the inception of liability are generally unenforceable.
Court’s Reasoning
The Court reasoned that a cause of action accrues at the time of the breach. In contract cases involving conditional payments, the obligation arises when the condition is fulfilled. Here, the condition was the Comptroller’s audit. Once completed and communicated to Kassner, the cause of action accrued. The Court highlighted, “But once the audit was completed and the plaintiff was informed of the results, the cause of action accrued.”
Regarding the contractual limitations clause, the Court acknowledged parties’ ability to shorten the statute of limitations, as it aligns with the statute’s purpose. However, extending the statute is more restricted due to public policy considerations. Quoting the 1961 Report of the NY Law Revision Commission, the court stated that public policy becomes pertinent where the contract not to plead the statute is in form or effect a contract to extend the period as provided by statute or to postpone the time from which the period of limitation is to be computed.
Agreements to extend made at the inception of liability are unenforceable because a party cannot waive a statute founded on public policy in advance. The Court observed, “If the agreement to ‘waive’ or extend the Statute of Limitations is made at the inception of liability it is unenforceable because a party cannot ‘in advance, make a valid promise that a statute founded in public policy shall be inoperative’.” The court noted that General Obligations Law § 17-103 permits extensions made after accrual if written and signed by the promisor. Since the clause here was part of the initial contract, it was ineffective to extend the limitations period. The Court suggested that the clause was likely intended to shorten, not extend, the limitations period.