A recent construction defect case decided by the Court of Appeals of Tennessee illustrates how both the three-year statute of limitations for injury to real property and the six-year statute of limitations for breach of contract can both apply in a construction defect case. The trial court held that the claims of the Plaintiffs, the homeowners, were barred by the three-year statute of limitations. The court of appeals reversed the trial court holding that some of the Plaintiffs’ claims were subject to the three-year statute, but others were subject to Tennessee’s six-year breach of contract statute.
Here are the basic facts of the case:
- The Plaintiffs bought a newly-constructed home built by Defendants
- The Plaintiffs alleged that the home contained construction defects and substandard materials
- The Plaintiffs asserted several different causes of action including negligence, breach of warranty and breach of contract
- Plaintiffs alleged that Defendant had breached their contract with them in a number of ways, including by employing negligent construction practices, but also, by refusing to honor the warranty made by Defendants to make repairs pursuant to the one-year warranty made by Defendants
- There was no dispute that the Plaintiffs’ claims were filed after the three-year statute of limitations for injuries to real property would bar them
- The Plaintiffs’ claims had been filed such that there was no dispute that they were not barred by the six-year statute of limitations applicable to breach of contract actions
The resolution of the statute of limitations issues in this case, as with many cases, turned on the analysis and application of the “gravamen of the complaint” theory which has been adopted in Tennessee. The court of appeals wrote that the overarching issue in the case was whether the trial court had properly determined that the gravamen of the Plaintiffs’ complaint was injury to real property such that the three-year statute of limitations applied.
The leading modern case on the gravamen of the complaint theory is the Supreme Court of Tennessee’s opinion in Benz-Elliott v. Barrett Enters., LP. The most critical point to understand about the gravamen of the complaint theory is that the applicable statute of limitations is not determined by the cause of action asserted by a plaintiff, but by the type of damage alleged by the plaintiff to have resulted from that cause of action. Another fundamental factor to keep in mind in applying the gravamen of the complaint theory is that, under Tennessee law, a plaintiff can plead alternative causes of action. That factor, and how it affects the gravamen of the complaint theory, was expounded upon in the Benz-Elliott case.
Keep in mind that, even in light of the analysis now required by Benz-Elliott, a plaintiff cannot avoid the application of the three-year statute of limitations applicable for claims for injury to real property just by asserting a cause of action for breach of contract where the only injury the plaintiff has is to real property.
Turning to the case which is the subject of this blog, the Plaintiffs had pled causes of action for negligent construction and for breach of contract. One basis of the Plaintiffs’ breach of contract claim was Defendants’ breach of the one-year repair warranty. The Plaintiffs had also requested damages other than damages to repair and to replace construction defects (repair and replacement would be necessary only if there had been an injury to real property). They sought damages for a refund of the purchase price of the home, moving expenses, costs for temporary housing, expenses for storage, lost profits from their home-business and diminution in value of their home.
Given the Plaintiffs’ assertion of a cause of action for breach of contract and of damages which the court of appeals determined were other than for injury to real property, the court of appeals held that the Plaintiffs’ breach of contract claim was subject to the six-year statute of limitations for breach of contract.
What this case teaches Tennessee construction lawyers is the importance, where their cases may be in jeopardy by the three-year statute of limitations, of pleading not only breach of contract claims, but also, whatever damages can be pled that are other than damages for injury to real property. One point to note about this case and its analysis is that the court seemed to conclude that damages that the Plaintiffs claimed for diminution in value and return of the purchase price for the home were not damages for injury to real property. While those damages were not directly tied to injury to real property, like repair and replacement costs are, I think it could be argued that both result from injury and damage to real property. One last thing to remember is that some construction contracts have their own contractually agreed statutes of limitations, and those are generally enforceable.