Indiana Business Law Blog
Suppose that eight years ago, you hired a construction contractor to build an addition to your house in Indiana. Shortly after the construction was finished, you noticed that the roof shingles on the addition weren’t quite the same color as those on the rest of the house. You checked the bundle of extra shingles that the contractor left behind and compared the information on the label with the specification in the contract. Sure enough, the contractor used the wrong shingles. Not only were they the wrong color, but they were also a lower quality than the contract specifications required. Even so, you were busy at the time and never got around to calling the contractor to get him to correct the mistake. Now you have a potential buyer for the house who is threatening to back out of the deal unless you replace the shingles. You call the contractor and demand that he correct his mistake. He refuses, saying it is too late for you to complain about the problem, that you should have called him as soon as you noticed it. Are you out of luck or not?
Statutes of Limitations
The key to answering the question is to determine the applicable statute of limitations. A person who has the right to sue someone for breach of contract (or, for that matter, the right to sue for other reasons) cannot wait forever to do it. How long the person can wait is determined by the statute of limitations that applies to the particular type of claim. In Indiana, there are two different statutes that might apply to the situation described above:
- Section 34-11-2-9 of the Indiana Code provides that the statute of limitations for breach of “promissory notes, bills of exchange, and other written contracts for the payment of money” is six years.
- Section 34-11-2-11 of the Indiana Code provides that the statute of limitations for breach of written contracts other than those for the payment of money is ten years.
Which one applies?
It has been more than six years, but less than ten, since the addition to your house was finished and you noticed the problem with the shingles. Which statute applies?
Certainly your construction contract called for the payment of money, but don’t most contracts do that? Is every contract that requires payment of money subject to the six-year statute of limitations, regardless of the rest of the contract? If so, that leaves the ten-year statute of limitations to cover only those contracts that do not involve the payment of money at all. On the other hand, maybe the idea is that the six-year statute of limitation covers contracts that do not involve anything other than the payment of money.
Surprisingly, there are very few published Indiana court decisions that address the question of which written contracts are covered by the six-year statute of limitations and which are covered by the ten-year statute, even though those statutes originated in 1881. However, the Indiana Supreme Court addressed the question with respect to an earlier version of the statutes in 1923.
The Ten-Year Limitation
The case was Yarlott v Brown, 192 Ind. 648, 138 N.E. 17 (1923), and the question was the statute of limitations on a mortgage. (At the time, the two statutes of limitation on written contracts were 10 years and 20 years, rather than 6 years and 10 years. Yarlott involved a lawsuit that was brought more than ten years, but less than 20 years, after the loan was supposed to be repaid.) Even though people commonly refer to the loans they take out to buy their homes as “mortgages,” in reality the mortgage is actually a document that reflects the lender’s right to foreclose on the property if the loan is not repaid; the obligation to pay the loan itself is set out in another document, called a note. However, in Yarlott, even though the mortgage was accompanied by a note, the mortgage contained not only the right of the lender to foreclose; it also repeated the obligation to repay the loan. It was clear that the statute of limitations on the note itself — a written contract for the payment of money — expired after ten years. But what about the mortgage? If it had not mentioned the repayment of the loan, it would have been subject to the longer statute of limitations. Did the fact that it repeated the obligation to repay the loan move it to the shorter limitation, the one that applied to “promissory notes, bills of exchange, and other contracts for the payment of money”?
The Indiana Supreme Court said no, the 20-year statute of limitations applied to the mortgage, despite the fact that it also provided for the payment of money. The Court reasoned that
. . . a mortgage differs in essential particulars from a promissory note, bill of exchange, or other written contract for the payment of money of the same kind as notes and bills. On the other hand, many actions which may be brought on such a mortgage bear a close resemblance to actions for the collection of judgments of courts of record, which are liens on real estate, or to actions for the recovery of possession of real estate. A familiar rule of statutory construction is that, where words of specific and limited signification in a statute are followed by general words of more comprehensive import, the general words shall be construed to embrace only such things as are of like kind or class with those designated by the specific words, unless a contrary intention is clearly expressed in the statute.
The underlining in the above quotation is ours, not the court’s, but those words are the key to understanding the decision. The shorter statute of limitations applies to written contracts that are similar to promissory notes and bills of exchange.
Now what about your construction contract? Even though it involves the payment of money, a construction contract is very different from a promissory note or bill of exchange. Doesn’t that mean that the applicable statute of limitations is ten years and that you still have the right to expect the contractor to pay for the cost of replacing your shingles? Well, maybe not.
Or is it the six-year limitation?
In 1991, the Indiana Court of Appeals stated that a teacher’s contract — which is also very different from a promissory note or bill of exchange — was a contract for the payment of money and therefore subject to the statute of limitations of six years, not ten. Aigner v Cass School Tp, 577 N.E.2d 983 (Ind. App. 1991). The decision did not even mention Yarlotte v. Brown or the possibility that the period of limitations might be ten years instead of six, maybe because the lawsuit regarding the teacher’s contract was brought within two years, so it was not barred regardless of which statute of limitations applied.
So where does that leave your claim against your former contractor? If a teacher’s contract is subject to a six-year statute of limitations, isn’t your construction contract also subject to a six-year limitation? It certainly seems so. But if you sue the contractor, you may be able to persuade the court that the Court of Appeals discussion of the statute of limitations governing the teacher’s contract was simply wrong because it was inconsistent with the precedent set by the Indiana Supreme Court in Yarlott v. Brown. Alternatively, you might argue that, because the contract in Aigner was valid under either statute of limitations, the court’s mention of the six-year statute of limitation is dictum and therefore not binding precedent. Unfortunately, you might have to go all the way to the Indiana Supreme Court to get a favorable decision on either rationale.
On the other hand, the decision in Aigner has been around more than 20 years, and it has not been overturned yet. Indiana courts may continue to follow Aigner for most written contracts, narrowly applying Yarlott to those that, even though they involve the payment of money, “bear a close resemblance to actions for the collection of judgments of courts of record, which are liens on real estate, or to actions for the recovery of possession of real estate.” All we can say is that anyone with a claim for breach of a written contract that involves any payment of money is far better off to file the lawsuit within six years; to wait longer is, at best, risky.
We invite others who may be able to shed light on this question to send us a message using the contact form on this page.
If you have a question about a contract that you are planning to sign, or a contract that you’ve already signed, please feel free to contact us to schedule an initial consultation.