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Bill closes ‘malpractice trap’ in contract actions

Legislation approved by the General Assembly should close a little-noticed gap in the statutes that set out Virginia’s limitations periods for contract actions.

The well-understood general rule for Virginia contract actions is that the deadline is five years for a written contract and three years for an oral contract. But a 2016 ruling from the Supreme Court of Virginia highlighted a gap: the five-year limitations period applies only when the contract in question is signed by the party sought to be charged with a breach.

That distinction drove the court’s decision that torpedoed a legal malpractice claim against a Halifax lawyer who had not signed the client’s fee agreement.

The court decision made it likely that a written contract not signed by the party being charged would be subject – not to the three-year deadline for unwritten contracts – but to a two-year deadline.

“This gap has been unnoticed by most lawyers and has been a malpractice trap that I have been concerned about,” said David J. Gogal of Fairfax, who led a Boyd-Graves Conference study committee.

The committee recommended a legislative fix to clarify that a written contract not signed by the defendant calls for a three-year deadline. The Assembly passed the measure last month. Gov. Ralph Northam has until March 26 to act on the bill.

Valid written contracts can be unsigned

The flaw in lawyers’ common knowledge about contract action limitations is found in the language of Virginia Code § 8.01-246(2). The paragraph provides for filing “in actions on any contract which is not otherwise specified and which is in writing and signed by the party to be charged thereby, or by his agent, within five years whether such writing be under seal or not ….”

The common belief that the five-year deadline applies to all written agreements appeared to stem from the assumption that written agreements have to be signed by both parties in order to constitute a contract, the Boyd-Graves study panel said.

But the Supreme Court said that was not necessarily the case. The word came in an unpublished order in Dunavant v. Bagwell, decided Feb. 12, 2016.

An unsigned agreement, with all terms embodied in a writing, unconditionally assented to by both parties, is a written contract unless the parties made their signatures necessary at the time of assent, the court said.

Lawyer never signed fee agreement

In the Dunavant case, the unsigned written contract was a lawyer’s fee agreement. Halifax attorney George H. Bagwell had a standard form with only one signature line – to be signed by the client. He testified he had never executed one by signing himself.

Bagwell was sued by Samuel J. Dunavant, who had hired Bagwell for an automobile accident personal injury claim. Dunavant contended his injury claim foundered in court because of Bagwell’s negligence. He sued Bagwell more than three years after the lawyer-client relationship ended.

Despite Bagwell’s practice of not signing his fee agreements – and the fact that no fee agreement for Dunavant’s case was ever located – Dunavant contended his suit against Bagwell was timely because Dunavant accepted the terms of the standard fee agreement, making it a valid written contract.

The trial court sustained Bagwell’s plea in bar finding no evidence of a written contract.

On appeal, the justices agreed with Dunavant that the fee agreement could stand as a valid written contract, but the court pointed to the language in the statute of limitations. The contract was not “signed by the party to be charged thereby.”

The justices said they did not reach the question of whether the three-year (oral contract) or the two-year (miscellaneous) statute of limitations applied.

Boyd-Graves study

“The situation does appear to create an unintended trap for the unwary,” wrote Gogal in the Boyd-Graves committee report.

“Because of this gap, a contract in writing not signed by the party to be charged apparently has a shorter statute of limitations than an unwritten contract,” he said, referring to the committee’s conclusion that the two-year deadline would apply.

“What most attorneys overlook and what Dunavant makes clear is that a written agreement can be signed by only one party and does not need to be signed by any party.”

The committee urged language in § 8.01-246 to make written contracts not signed by the party to be charged subject to the three-year limitations period.

“Given the apparent misconception of existing law and the unintended consequences that this gap will likely cause to both clients and their counsel, the committee strongly believes that this fix should be made as soon as possible,” Gogal wrote in May.

Legislative fix

The bill to mend the gap was sponsored by Del. Richard C. “Rip” Sullivan Jr., D-Arlington. House Bill 2242 applies the three-year deadline for unwritten contracts also to “any contract that is not otherwise specified and that is in writing and not signed by the party to be charged, or by his agent.”

The legislative history reflects no opposition as the bill made its way through both House and Senate.