BMW Dealership Defeats Fraud Suit On Statute of Limitations Grounds

Occasionally, I’ll have a case that appears to be governed by two or more conflicting statutes of limitations. For example, one statute will give a plaintiff four years to file suit while an apparently equally applicable one compresses the time to sue to two years. As plaintiff, I usually (not always) argue for the longer limitations period to apply, while as defendant, I want the shortened time span (so I can move to dismiss the too-late complaint).

In Belsky v. Fields Imports, Inc., 2013 WL 5819232 (N.D.Ill. 2013), the Northern District methodically analyzes which of two seemingly applicable (and conflicting) limitations periods (is it 10 years or 4 years?) applies to a breach of contract suit involving a defective motor vehicle.

Facts:

Plaintiff sued a car dealership and warranty service administrator for breach of various written agreements generated in connection with plaintiff’s purchase of a BMW. Plaintiff bought the car in 2005 and bought the service contract – which provided for repair and replacement of specified car parts – in 2009. Plaintiff alleged that in 2012 she noticed that the car had a defective engine bolt. When the defendants failed to provide warranty coverage for the bolt problem, plaintiff sued under state law breach of contract theories. Defendants’ filed separate Rule 12(b)(6) motions to dismiss plaintiff’s complaint. The court granted the motion and dismissed all counts of plaintiff’s complaint with prejudice.

Q: Why?

A: Plaintiff’s breach of contract claims against the dealership failed for two reasons: (1) the claims were time-barred; and (2) plaintiff failed to allege which part of the sales contract the dealer breached. The court held that the four-year limitations period set forth in Uniform Commercial Code (“UCC”) Section 2-725 (810 ILCS 5/2-725) governed the plaintiff’s sales contract count.

The UCC applies to “sales” transactions involving “goods” and Section 2-725 simply provides that “an action for breach of any contract for sale must be commenced within 4 years after the cause of action accrued". Belsky, *3, 810 ILCS 5/2-725(1). There is also no “discovery rule”: the four year time limit applies regardless of whether the plaintiff lacked knowledge of the breach. 810 ILCS 5/2-725(2).

Plaintiff argued that Illinois’ ten-year limitation period for written contract applied. See 735 ILCS 5/13-206.

But the Court sided with defendants and applied the shorter four-year limitations period. It h

eld that the BMW, a car, clearly met the UCC’s definition of “goods” (a “thing” that was “moveable” at contract inception) and involved a “sale” (passing of title from seller to buyer for a price). *3 (UCC Section 2-105(1)(goods definition); UCC Section 2-106(1)(sale def.).

In addition, Code Section 13-206 (the ten-year statute for written contracts) expressly exempts claims under UCC Section 2-725 (the four-year rule) from its scope. Section 13-206’s lead-in provides “except as provided in Section 2-725 of the Uniform Commercial Code…”. Applying the four-year limitation, the Court held that the plaintiff’s breach of contract claims were three years too late and dismissed the case. *3.

In dismissing the plaintiff’s service contract claims, the Court relied on agency law. It held that the dealer entered into the contract on behalf of a disclosed principal (the warranty administrator). Black letter agency rules dictate that an agent (here, the dealer) of a disclosed principal (the administrator) isn’t liable on contracts entered into for its principal. *7.

The Court also dismissed the plaintiff’s service contract claim against the administrator because like the sales contract, the service contract also specifically excluded engine bolt defects from its coverage. *9-10.

Take-aways: Where two conflicting limitations periods potentially control, the one that more specifically matches the facts will govern. A contract for the sale of a “good” (like a car) will trigger the UCC’s four-year time span rather than the ten-year rule for written contracts.

Also, a contractual disclaimer, if easy to read and find, will be upheld.