‘Discovery rule’ avoids limitation on contract claim
By Jeffrey P. Downer

The "discovery rule" applies to contract claims, the Washington Court of Appeals has held in a case that has broad implications for contractors.

In Khorram v. Kinsington Homes, no. 48181-9 (May 2002), the Khorrams hired Kinsington to build their home. The house was completed in June 1993. In 1998, the Khorrams noticed bubbling and peeling exterior paint and rotted molding. Repairs uncovered extensive dry rot. In April 2000 they learned that dry rot probably had been ongoing ever since the house was built. The Khorrams sued Kinsington for breaches of contract, warranties, and guarantees.

Kinsington moved to dismiss the action as time-barred. A three-year statute of limitations applies to claims based on tort or on oral contracts; a six-year statute applies to claims on written contracts. The construction statute of repose further bars claims accruing more than six years after substantial completion of construction. The trial court granted the motion. The Khorrams appealed.

The Khorrams argued that the "discovery rule" applies in contract actions, so that the six-year statute began to run only when they discovered the defects in 1998. The Court of Appeals agreed, concluding that the reasons for the discovery rule in tort claims apply equally in contract actions and that the statute of limitations for contract actions begins to run when a party knows or should know of the other party’s breach. Here, the Khorrams discovered the breach in 1998, within the statute of repose, and sued within two years of discovering the alleged breach, so that the statute of limitations did not bar their claims.