Written Contracts and the Statute of Limitations

Written Contracts and the Statute of Limitations

Jan 1, 2013

Business people prefer written to oral contracts for many reasons. Among them, the terms of a written contract are less susceptible to misconstruction or misunderstanding, and some oral agreements – including real estate transactions and contracts not to be performed within a year – may not be enforceable at all if they are not in writing. Another important distinction is the statute of limitations. In Virginia, an action on a written contract must be commenced within five years of signing the contract or the accrual of the cause of action. For an oral contract, the limitations period is three years. The distinction became very important to Gerald T. Dixon when he realized he had a cause of action against his surveyor more than three years after the date of their agreement.

In 2003, Dixon retained Hassell & Folkes, P.C. (“H&F”) to survey and mark the boundary lines of a property he owned in Chesapeake. Relying on the survey, Dixon constructed a foundation slab on the parcel and then conveyed it to Brat Development, LLC in March 2006. Not long after, Brat began construction on the property, but that process came to a sudden halt when A&G Partnership sued to stop the construction because the office building being constructed by Brat encroached on A&G’s property. Brat wasn’t happy, but they had a remedy. They sued Dixon for constructive fraud and breach of the warranty deed from Dixon to Brat. Dixon wasn’t happy either, and his remedy was not as clear, because it was August 2009 before Dixon realized he had a claim against H&F for the inaccurate survey that he had relied on. This was more than three years after the date of the agreement and the completion of the survey.

Because the work under the H&F contract concluded by March 2006, Dixon had a statute of limitations problem unless he could rely on a written agreement. His lawyers came up with an artful theory to circumvent his problem. Dixon produced a letter, written and signed by Grey Folkes, resident of H&F. The letter set out the terms of the arrangement and was signed by Mr. Folkes. Dixon claimed that the letter embodied an agreement between the parties which had been fully performed by both sides and thus constituted a written contract sufficient to invoke the longer statute of limitations. Disagreeing, H&F argued the letter was merely an unsigned contract proposal and that the three years limitations period that is applicable to oral contracts applied.

H&F noted that the letter specifically stated in two places that the proposal would become an executed agreement only when endorsed by Dixon and returned. Dixon, who acknowledged he never signed it, claimed the absence of his signature was a mere formality, since the letter contained the terms of an agreement that had been fully performed by the parties. Dixon also pointed to the statute (Code of VA § 8.01-246(2)) setting out the necessary criteria for the application of the longer limitations period and argued the three critical elements had been met: 1) the contract specified no alternative statute of limitations, 2) it was in writing, and 3) it was signed by the party to be charged with breach.

Both the trial court and the Virginia Supreme Court disagreed. Ultimately, the result might have been different had H&F not performed at all and Dixon relied on the letter to demand performance. However, the question was whether H&F could be held liable for a deficient performance more than three years earlier. Mr. Folkes was correct – Dixon had not protected his own interest by fulfilling the precondition of signing the letter, which was clearly stated in the offer letter.