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Which Statute of Limitations Applies: Six Year for Breach of Contract, or Three Year for Injury to Property?

The Supreme Court of Tennessee recently clarified how to determine whether the three year statute of limitations for injuries to property or the six year statute of limitations for breach of contract applies to a case.   Which statute applies can be outcome determinative, so, understanding the Court’s holding in the case is a necessity for Tennessee lawyers who handle breach of contract cases and tort cases.

In the case, Benz-Elliott v. Barrett Enterprises, LP (Tenn. 2015), the Plaintiff filed a complaint containing a claim for breach of contract as well as tort claims for fraud and negligent misrepresentation.  The tort claims were dismissed at the trial court level; did not become an issue on appeal; and, are irrelevant for analysis of the case.

The Plaintiff’s breach of contract claim stemmed from a written agreement wherein the Plaintiff agreed to sell some land to the Defendant.  The Plaintiff owned ninety one acres of land which adjoined the Defendant’s land. The Defendant wanted to purchase four acres of the Plaintiff’s land.  The Plaintiff was agreeable to selling so long as she could reserve the ownership of some of the land so that she would have access to the land she was not selling.

The Plaintiff and Defendant reached a written agreement that, in exchange for Plaintiff’s selling it the four acres of land, the Defendant would ensure that the Plaintiff had ownership of a sixty foot wide strip of land in that four acres so that Plaintiff would have the access she desired from the property she retained.

The Defendant developed the property which the Plaintiff conveyed to it in a way that prevented the Plaintiff from having the strip of land.  The trial judge held that the Defendant had breached the contract.  The Plaintiff claimed that, because of the Defendant’s breach, the property she retained had diminished in value.  The trial judge agreed and awarded her $650,000.00 for diminution in value of the land she had not sold and which adjoined the four acres.

The Court of Appeals of Tennessee reversed the trial court.  It held that the Plaintiff’s claims were barred by the three year statute of limitations applicable to injuries to property.  Since the damages awarded were for diminution in value of property, the appeals court reasoned that the three year statute of limitations for injuries to property applied.

The issue to be decided by the Supreme Court of Tennessee was whether the six year statute of limitations for breach of contract or the three year statute of limitations for injuries to property applied.  It held that the six year statute applied.  In doing so, it explained the framework to be used by Tennessee courts to decide, in future cases, which statute of limitations applies.

The first thing the Supreme Court said was that the old Tennessee rule that the “gravamen of the complaint” determines which statute of limitations applies is no longer to be used.  The Court explained that that rule is no good any longer because a complaint may contain different and even inconsistent claims.

The Court held that, from now on in Tennessee, courts must determine the gravamen of each claim set forth in a complaint, not the gravamen of the complaint in its entirety.  So, it is possible for a complaint to contain different claims or causes of action which are each subject to different statutes of limitations.

With respect to each separate claim, how do you determine whether the six year breach of contract or three year injury to property statute of limitations applies?  You must use the two step approach outlined in the opinion.  The two step approach is Step One: consider the legal basis of the claim; and, Step Two: consider the type of injuries for which damages are sought.

At least in cases similar to the Benz-Elliott case, figuring out the legal basis of the claim is easy and straightforward.  All you have to do is look at the claim.  In the Benz-Elliott case, the claim was for breach of contract so the legal basis of the claim was in contract and not tort.  The first step is that simple.

How about Step Two, determining the “type of injuries for which damages are sought”?  In making this determination, you have to determine the claim from which the injury resulted.  In the Benz-Elliott case, the injuries resulted directly from a breach of contract and not from injury to the property itself.  Thus, Step Two, at least on the facts of the Benz-Elliott case, was just as easy to figure out as Step One.

The Benz-Elliott case closed the door on a lot of old Tennessee law about which statutes of limitations apply which was confusing and inconsistent.  Moreover, the two step approach it now requires should not be difficult to apply in most cases.