I wrote last week about the National Auctioneers Association’s 59th annual Conference and Show, held the week of July 7 in Nashville. It was a good convention and our family had a fine time.

Education is a major component of every NAA get-together and this convention offered a generous buffet of seminars. I presented six hours of legal seminars and this week I’m going to highlight a point from my presentation, “UCC – Contracts to Warranties: What Auctioneers Must Know.”

A statute is a legal rule voted upon and passed by a legislative body and ultimately enacted into law by signature of the jurisdiction’s top executive. Your state legislature passes bills and sends them to the governor for signature. Once signed, these bills become part of your state’s code of statutory law.

The law of every state contains statutes that prescribe limitation periods. These limitation periods define the maximum amount of time an aggrieved party is allowed to initiate a legal proceeding to address a claim or complaint for some act, event, omission or other point. Such laws are commonly referred to as a “statute of limitations.” An aggrieved party might be either the government or an individual citizen and the subject matter might fall within either civil or criminal law.

Once a limitation period prescribed by a statute has “run” without a proper legal action being initiated, the matter is said to be “time barred.” This means the aggrieved party’s failure to timely act has ended any potential to later address the matter.

For example, if a person is injured in a car wreck, but fails to file a lawsuit against the correct defendant within the prescribed period for doing so, the injured person would be foreclosed from later suing the defendant and seeking damages. In the eyes of the law, the matter would be ended for all time and no legal action would be permitted.

This is because the law favors finality. A limited exposure to legal action is far preferable to an unlimited period inasmuch as the former provides a degree of certainty about the future that the latter would not.

Let’s look at a common statute of limitation – Section 2-725 of the Uniform Commercial Code, which addresses contracts for sale. The statute reads in part: “An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.”

Consider the four-year window for filing a claim. From a potential defendant’s perspective, four years for the claim “blade” to hang over one’s neck is certainly more desirable than would be an unlimited period to commence a legal action, but it’s still a long time.

Now consider the second sentence in the statute – the provision that states “the parties may reduce the period of limitation to not less than one year.” If you’re making sales that fall within the parameters of the commercial code and have a concern about a potential claim being asserted against you, would you rather be under a four-year, three-year, two-year or one-year timeframe?
The answer is obvious. You would want the shortest window you could get for someone to initiate an action against you – one year.

The commercial code allows you to have that one-year limitation period, if the other party agrees to it. In my experience, an opposite party in a commercial contract will seldom question this provision, let alone fail to agree to it. I include it in about every commercial contract I prepare – even those that are not contracts for sale. I do this because I want the added protection this short-term window would afford in every instance I can get it, and there’s only one way for me to accomplish that – by bargaining for it in the contract with the other party.

If it’s a contract for sale, the commercial code gives me a solid expectation that the period would be upheld. If it’s another type of contract, I hope a court would sustain my position against any challenge. I believe that in the great majority of instances this is exactly what a court would do.

The bottom line is you can never have this protection unless you ask for it and get it agreed to, so put it in your contracts. If there’s an objection, work to overcome it.

Here’s a sample provision that I drafted for this purpose. While there’s no guarantee this will work for you, it’s what I use:
Any action or suit of any kind must be commenced within one (1) year from the date when the cause of action or suit accrued or it will be forever barred. The right of action or suit will accrue, and the one (1) year limitation period will begin to run, on the date the breach, damage, or injury is sustained and not when the resulting cost, damage, harm or loss is discovered.

Understand that other provisions of law could apply to a specific case that might affect your attempt to shorten the limitation period in a given situation. Be smart and consult your attorney on such matters.

A narrow window of exposure can be a very valuable tool in your risk-management toolbox. Consider how you can make the statute of limitations work for your benefit and draft your contracts accordingly.

Steve Proffitt is general counsel of J.P. King Auction Co., Inc., online at www.jpking.com

He is also an auctioneer and instructor at both Reppert School of Auctioneering in Auburn, Ind., and Mendenhall School of Auctioneering in High Point, N.C. He welcomes questions from readers about auctions and auctioneering. Readers’ communications may be reprinted in whole or part.

Proffitt will answer selected questions but cannot provide personal answers. His answers do not represent legal advice or the formation of an attorney-client relationship.
Please submit questions to sproffitt@jpking.com