Chancery Court Applies New Statutory Amendment Retroactively

Before the newly enacted statutory amendment, 10 Delaware Code Section 8106(c), parties could shorten, but were not permitted to lengthen, an applicable limitations period by contract because an extension of the statute of limitations by agreement violated public policy. (See, e.g., Bonanza Restaurant v. Wink, C.A. No. S10C-10-018 RFS (Del. Super. Apr. 17, 2012), aff’d, 65 A.3d 616 (Del. 2013); and Shaw v. Aetna Life Insurance, 395 A.2d 384, 386-87 (Del. Super. 1978).) The Delaware General Assembly recently enacted 10 Delaware Code Section 8106(c), which was effective Aug. 1, 2014. Section 8106(c) now permits contracting parties to extend the three-year limitations period, applicable to most contract actions brought in Delaware, by agreement for up to 20 years from the time a cause of action accrues, in a written contract “involving at least $100,000.” Section 8106(c) allows parties to define the time period in which suit may be brought in their contract by reference to traditional measures of time (e.g., months, days or years), but also provides flexibility for contracting parties to define such period of time “by reference to the occurrence of some other event or action, another document or agreement or another statutory period,” or even “an indefinite period of time” up to 20 years from the time a cause of action accrues.

In the first decision to interpret new Section 8106(c), Bear Stearns Mortgage Funding Trust 2006-SL1 v. EMC Mortgage LLC, C.A. No. 7701-VCL (Del. Ch. Jan. 12, 2015) (Laster, V.C.), the Court of Chancery held that Section 8106(c) applies retroactively, allowing the parties to extend by agreement the limitations period applicable to their contract, which was entered into before the statutory effective date. In its discussion of two alternate bases for its decision, the court further held that a “contractual accrual provision [was] a condition precedent to a plaintiff’s ability to sue such that the statute of limitations does not begin to run until the condition precedent is met.” Thus, the accrual provision postponed the point when the claims arose and the limitations period began to run. Second, relying on the Delaware Supreme Court’s decision in Saudi Basic Industries v. Mobil Yanbu Petrochemical, 866 A.2d 1 (Del. 2005), the court declined to apply Delaware’s borrowing statute (or the shorter Delaware three-year statute of limitations) to bar “a claim that would be timely” if the action had been brought in New York, where the cause of action arose and which has a longer six-year statute of limitations. Accordingly, in a rare occurrence, the court granted a motion for reargument of its motion-to-dismiss ruling, which had dismissed all but one claim on the grounds of laches based on Delaware’s analogous three-year statute of limitations. In the motion for reargument, the court held that the claims were timely filed.

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