Following the construction industry and related legal topics in the United States.


Thursday, January 25, 2007

Assurance = Estoppel

Any blog entry with the word "estoppel" in the title has got to be dry and boring, right? Not this one, read on.

Nobody wants to be on the hook for liability indefinitely. Statutes of limitations are designed to solve this problem. But what if the result is patently unfair, where a Contractor assures the Owner a problem is taken care of and it is later discovered it was not? Red Dirt Properties, LLC v. Prime Building Company Inc. of North Carolina (North Carolina Lawyers Weekly No. 07-16-0119) is instructive.

So what's the dirt on Red Dirt? In June 2000, Owner and Contractor signed a contract for the removal of trees, roots, stumps and other debris for the Owner's property and dispose of them off-site. Five months later, Owner received notice from the site engineer that instead of disposing debris off-site, the Contractor was burying it under the future expansion area on the property. Owner contacted Contractor and thereafter received Contractor assurances that the matter was investigated and there were no problems. In December 2003, Owner was working on its future expansion and discovered the hidden organic material buried on the property. Owner sued the Contractor in August 2004 - three years and three weeks after the original project was completed. However, in North Carolina there is a three-year statute of limitations for contract actions. Is the Owner's action time barred?

No, ruled the North Carolina Court of Appeals. The reason? The equitable doctrine of "estoppel" essentially stops the Contractor from raising the statute of limitations defense because of the Contractor's assurances that there was no problem with the debris. The Owner could reasonably rely on such assurances, and therefore the three-year statute of limitations accrued starting December 2003 - upon the discovery of the hidden problem. Owner filed its lawsuit in less than one year from the date of discovery, so the action is timely.

"Estoppel" is a funny sounding word that prevented an unfair result in the Red Dirt case. Lesson learned: In the future, whether you are the giver or receiver of assurances, be aware that such assurances may give rise to an estoppel argument that could extend the statute of limitations period of a future claim. (Today's entry was published by Ken Michael of Womble Carlyle's construction and real estate development group.)

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