ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEES
Mark E. Spitzer Joseph W. Eddingfield
Marion, Indiana Wabash, Indiana
In the
Indiana Supreme Court
_________________________________
No. 27S02-0309-CV-398
NEW WELTON HOMES, SUCCESOR IN INTREST TO,
DON WELTON MANUFACTURED HOUSING, INC.,
Appellant (Defendant below),
v.
LANCE ECKMAN AND KAREN ECKMAN,
Appellees (Plaintiffs below),
AND
RICHARD C. GREEN D/B/A GREEN CONCRETE,
Appellee (Defendant below).
_________________________________
Appeal from the Grant Circuit Court, No. 27C01-0112-CP-876
The Honorable Thomas R. Hunt, Judge
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 27A02-0208-CV-694
_________________________________
June 28, 2005
Shepard, Chief Justice.
A family contracted for a manufactured home. The agreement included a warranty
requiring any claims for breach to be brought within one year. Two years after the home was
completed, the purchasers experienced foundation damage after substantial rains and sued the
seller for breach of contract. They urge that the discovery rule used for determining when a
cause of action accrues within the meaning of the statute of limitations be deployed to extend
warranty agreements in contracts. We conclude that there is little justification for such judicial
alteration of private contracts.
Facts and Procedural History
In December 1998, Lance and Karen Eckman contracted with Don Welton Manufactured
Housing, Inc. (now “New Welton”) to purchase and place a 1999 Commodore Modular Home.
Among other things, the agreement required installation of a foundation on which to place the
modular home, and the creation of a perimeter drain to prevent moisture encroachment on and
beneath the foundation. New Welton obtained a proposal from Green Concrete to help backfill
the foundation and perimeter drain, and grade and seed that area. New Welton completed this
project in June 1999.
The area where the Eckmans reside experienced a drought between 1999 and 2001.
There were several consecutive days of rainfall in late May and early June 2001. About a month
after these rains, the Eckmans noticed settling and cracking inside the modular home. They
discovered water standing around the perimeter of it. Further investigation revealed moisture
accumulated inside the foundation area and around the structural support system under the home.
This discovery occurred about two and a half years after the home’s completion.
The Eckmans sued New Welton and Green, claiming a failed perimeter drainage system
and seeking a judgment for the resulting damage. New Welton moved for summary judgment,
citing the claims provision in the contract between them. The Eckmans and New Welton had
signed a contract under which they agreed that in the event either of them breached, claims for
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the breach must be brought within one year of the breach. 1 The trial court denied the motion for
summary judgment, holding that the discovery rule applied to the contractual limitations period.
The Court of Appeals affirmed, holding that a discovery rule could apply to a breach of
contract action that included a limitation action provision. New Welton Homes v. Eckman, 786
N.E.2d 1172, 1178 (Ind. Ct. App. 2003) vacated. We granted transfer.
Contractual Limitation v. Discovery Rule
The Eckmans argue that the discovery rule should apply because they were not able to
detect the defective perimeter drain until after the damage surfaced from the rainfall of May
2001. To support their position, the Eckmans cite Barnes v. A.H. Robbins Co., 476 N.E.2d 84
(Ind. 1985), which states that “it is inconsistent with our system of jurisprudence to require a
claimant to bring his cause of action in a limited period in which, even with due diligence, he
could not be aware that a cause of action exists.” Id. at 86. As such, the Eckmans believe that
the contractual limitation provision began to run after the damage was discovered, not when it
occurred. (Appellees’ Br. at 9).
The Eckmans also cite Essex Wire Corp. v. M.H. Hilt Co., 263 F.2d 599 (7th Cir. 1959),
where the court held that a cause of action accrues at the time that one suffers legal injury and
resulting damage that is sustainable and that both elements must come into existence before the
limitation period commences to run. Like the Court of Appeals, the Eckmans rely on Habig v.
Bruning, 613 N.E.2d 61 (Ind. Ct. App. 1993), to support the extension of the discovery rule from
tort to contractual matters. Based on their understanding of Habig, the Eckmans argue that “the
statute of limitations began to run when [they] ‘knew or in the exercise of due diligence could
have discovered’” that their property had been damaged as a result of New Welton’s breach. Id.
at 65; (Appellees’ Br. at 6 – 7).
1
The one-year period of limitation found in paragraph 15 of the contract states: “I understand and agree that – if
either of us should breach this contract -- the other of us shall have only one year, after the occurrence of that
breach, in which to commence an action for a breach of this contract.” (Appellant’s App. at 55.)
Similar clauses have also been challenged and upheld in federal courts. See e.g. Resolution Trust Corp. v. Krantz,
757 F.Supp. 915 (N.D. Ill. 1991).
3
Each of these cases represent disputes in which the courts were called upon to determine
when a cause of action might “accrue” within the meaning of the applicable statute of limitation.
New Welton urges that these interpretations of statutory limitation periods are inapplicable.
Using arguments typically found in the insurance realm, New Welton relies on Summers v. Auto
Owners Ins. Co., 719 N.E.2d 412, 414 (Ind. Ct. App. 1999), which reinforces the point that a
contract limitations provision is valid as long as a reasonable time is afforded.
The Nature of Contract
A contract expresses the legal relationship between parties manifested by their assent and
which organized society recognizes as giving remedies to the holder of a right against the bearer
of a legal obligation. See, 1 Arthur L. Corbin, Corbin on Contracts §§ 1.2-1.3 (Joseph M. Perillo
ed., rev. ed. 1993). They represent “private, voluntary allocations by which two or more parties
distribute specific entitlements and obligations.” Johnson v. Scandia Associates, Inc., 717
N.E.2d 24, 29 (Ind. 1999). Professor Farnsworth discussed voluntary allocation of rights and
obligations this way:
[An e]xchange is the mainspring of any economic system that relies as heavily on
free enterprise as does ours. Such a system allocates resources largely by direct
bilateral exchanges arranged by bargaining between individuals. In these
exchanges each gives something to the other and receives in return something
from the other.
1 E. Allan Farnsworth, Farnsworth on Contracts § 1.2 (3rd ed. 2004).
Indiana law generally holds that “contractual limitations shortening the time to
commence suit are valid, at least so long as a reasonable time is afforded.” Summers, 719
N.E.2d at 414. While contractual provisions may sometimes be avoided if the claimant can
prove fraud, duress, misrepresentation, adhesion, or illusory contract, the Eckmans do not
challenge the contract or the claims provision on any of these grounds.
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Our courts have regularly held that unless a contractual provision contravenes a statute or
public policy, “actions on a policy that are brought after the expiration of the limitation period
provision will be barred.” Brunner v. Econ. Preferred Ins. Co., 597 N.E.2d 1317, 1318 (Ind. Ct.
App. 1992). See also, United Techs. Auto. Sys., Inc. v. Affilliated FM Ins. Co., 725 N.E.2d 871
(Ind. Ct. App. 2000) trans. denied; Burress v. Indiana Farmers Mut. Ins. Group, 626 N.E.2d 501
(Ind. Ct. App. 1993) trans. denied. The Brunner court adopted the reasoning of what Judge
Barteau called the “vast majority of courts,” that an insured’s failure to discover a loss within the
time provided under the contract for bringing a claim is immaterial. Brunner, 597 N.E.2d at
1318-19. See also United Techs., 725 N.E.2d at 875.
The Eckman’s proposal to apply the discovery rule to contract law is based on tort
principles. “The basic theory underlying the distinction between contract and tort is that tort
liability is imposed by law and that contract liability is the product of an agreement of the
parties.” Greg Allen Constr. Co. v. Estelle, 798 N.E.2d 171, 173 (Ind. 2003). Similar to
insurance policies, “we must leave to the individual parties the right to make the terms of their
agreements as they deem fit and proper, and, as long as those terms are clear and unambiguous
and are not unlawful, we can only enforce them as agreed upon.” C.A. Enter., Inc. v. Employers
Commercial Union Ins. Co. of America, 176 Ind. App. 551, 554, 376 N.E.2d 534, 536 (Ind. Ct.
App. 1978).
The Court of Appeals has observed that allowing the discovery rule to supercede the
contractual limitations in insurance cases would “burden [parties] with obligations they did not
anticipate or undertake, and bestow . . . a windfall.” Burress, 626 N.E.2d at 504-05. The Court
of Appeals has also said, “[w]hen there is no ambiguity in a contractual provision, that
provision’s plain language controls.” Id. at 505. Here, both parties agreed to the provisions, and
the contract limitation should be enforced. The action did not commence within the agreed upon
period and is therefore time-barred.
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Conclusion
We reverse the trial court and remand with directions to grant judgment to New Welton.
Sullivan and Boehm, JJ., concur.
Dickson, J., concurs with separate opinion.
Rucker, J., dissents with separate opinion.
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Dickson, Justice, concurring
It should be noted that the Court today enforces a contractual provision shortening the
time in which to bring an action for breach of a contract requiring installation of a perimeter
drain around a mobile home foundation. This does not involve a contractual provision
attempting to shorten a statutory limitation period for personal injury actions. The contract at
issue is not an insurance policy. And there is no claim that it is a contract of adhesion.
In fact, the plaintiffs do not dispute the one-year limitation period provided in the
contract. Rather, it appears that the sole issue is the construction of the contractual provision
"after the occurrence of that breach" that triggers the one year period. Appellant's App'x. at 55.
The defendant appeals the trial court's decision to apply a discovery rule rather than to follow the
contractual language. I concur with the Court's decision today to enforce the plain language of
the parties' contract.
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RUCKER, Justice, dissenting.
Because I believe the discovery rule should apply to this contract in spite of the limitation
provision, I respectfully dissent.
The majority opinion relies wholly on insurance policy cases to support its holding. The
majority cites Summers v. Auto-Owners Ins. Co., 719 N.E.2d 412 (Ind. Ct. App. 1999) to uphold
the rule that “contractual limitations [in insurance policies] shortening the time to commence suit
are valid, at least so long as a reasonable time is afforded.” Id. at 414 (quotations omitted). See
Slip op. at 5. The majority also relies on Brunner v. Economy Preferred Ins. Co., 597 N.E.2d
1317 (Ind. Ct. App. 1992) for the rule that “a provision in an insurance policy that limits the time
in which a suit may be brought to a period less than that fixed by the statute of limitations is
binding, unless it contravenes a statute or public policy.” Id. at 1318. See Slip op. at 6.
This rule apparently goes back as far as 1908, when this Court declared, “the great weight
of the authorities [holds] that a provision in an insurance policy limiting the time in which suit
may be brought thereon to a period less than that fixed by statute of limitations is binding, unless
it contravenes a statute.” Caywood v. Supreme Lodge of Knights & Ladies of Honor, 171 Ind.
410, 86 N.E. 482, 483 (1908). In Caywood, our Court relied on the reasoning of the United
States Supreme Court in Riddlesbarger v. Hartford Ins. Co., 74 U.S. 386 (U.S. 1868), which held
that limitations provisions in insurance policies must be adhered to because “[i]t is clearly for the
interest of insurance companies that the extent of losses sustained by them should be speedily
ascertained, and it is equally for the interest of the assured that the loss should be speedily
adjusted and paid.” Id. at 390.
As the above cases reveal, there are policy reasons why the limitation provisions in
insurance policies should be strictly adhered to. “[T]hese limitations protect insurers from policy
holders who voice no claim until the year has long since expired, promote early notification
while evidence is available, and provide carriers with a basis for forming business judgments
concerning claim reserves and premium rates.” Summers, 719 N.E.2d at 414. In this case for
example the Court of Appeals reasoned,
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These insurance cases demonstrate this court’s concern with
maintaining the balance struck by the parties to the insurance
contract. Premiums are set by the insurers based upon the kind of
risk to be covered and the length of time for that coverage. That
balance might be upset by extending the time period within which
to bring suit. We also are concerned with preserving the insurer’s
opportunity to investigate claims.
New Welton Homes v. Eckman, 786 N.E.2d 1172, 1176 (Ind. Ct. App. 2003). As the Court of
Appeals noted, “The valid concerns presented in insurance industry cases are not present here.”
Id. at 1177. I agree.
Insurance policy premiums depend directly on the length of time coverage applies and
the time in which a claim may be brought. The price agreed to by parties in a construction
contract, however, is little affected by a provision limiting the time in which to bring suit. Thus
the policy reasons to uphold limitation provisions in insurance policies simply do not make sense
in the context of this construction contract, where due diligence could not have uncovered the
latent defect in the foundation. As we noted in Barnes v. A.H. Robins Co., Inc., 476 N.E.2d 84,
86 (Ind. 1985), “The [discovery] rule is based on the reasoning that it is inconsistent with our
system of jurisprudence to require a claimant to bring his cause of action in a limited period in
which, even with due diligence, he could not be aware a cause of action exists.”
For the aforementioned reasons, I respectfully dissent.
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