The Massachusetts Supreme Judicial Court ("SJC") has held that a term contained in a franchise agreement providing for a shorter statute of limitations period for the parties to bring claims against one another under the agreement was enforceable and valid where the parties negotiated in good faith, and where the new limitations period was reasonable and did not violate public policy or any other statutory provision.
In Creative Playthings Franchising, Corp. v. Reiser, the defendant had purchased a Creative Playthings franchise. The parties executed a franchise agreement which included a clause in which they agreed that neither party would bring any claim against the other after the expiration of either one year from the date of the discovery of the facts that give rise to the claim (or, if earlier, one year from the date that the facts should have been discovered with reasonable diligence), or eighteen months after the date of the first act or omission that gave rise to such a claim. The clause also stated that any action or claim brought after these periods had expired would be barred.
Five years later, Creative Playthings terminated the franchise agreement, claiming that the defendant had violated certain terms of the agreement. Creative Playthings then sued the defendant in U.S. District Court for, among other claims, breach of contract and trademark infringement. The defendant filed a counterclaim alleging breach of the implied covenant of good faith and fair dealing, fraudulent inducement, violations of G. L. c. 93A. Creative Playthings asserted that these counterclaims were time barred under the limitations provision in the franchise agreement. The U.S. District Court certified to the Supreme Judicial Court the question of whether contractually shortened statute of limitations periods are generally enforceable under Massachusetts law.
In its analysis, the SJC observed that Massachusetts General Laws c. 260, § 2 establishes that a cause of action based on contract must be brought within six years. However, Massachusetts courts have long allowed a shorter limitations period in particular circumstances if it is shortened by contractual agreement. Albrecht v. Clifford, 436 Mass. 706, 717-718 (2002); Cunningham Leather Co. v. American-Hawaiian S.S. Co., 285 Mass. 232, 234-235 (1934); Bowditch Mut. Fire Ins. Co., 6 Gray 596 (1856).
The SJC noted that the franchise agreement between the parties was negotiated in good faith, and its belief that the limitations periods set out in the agreement were reasonable. The Court also noted that, because the certified question did not include an inquiry as to whether the limitations periods as written violated the discovery rule, the SJC would not consider the issue. However, the SJC suggested that, if the limitations periods did violate the discovery rule, the shortened limitations periods contained in the franchise agreement would violate public policy.
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