The statute of limitations for contract claims

Written by kausalya hegde
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The statute of limitations for contract claims
Statutes of limitation aim at preventing stale claims and unfair prejudice to the defendant. (open old book image by musk from Fotolia.com)

A statute of limitations applicable to contract claims determines the "limitation period" or the time within which a plaintiff should bring an action for claims related to or arising from a contract dispute. The statute may bar legal or equitable remedies if the plaintiff brings action after the prescribed period of limitation has run out.

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Factors Determining Applicable Statute of Limitation

Depending on where the complaint is filed, the type of contract and the "gravamen"--the greatest grounds"--of the action, a particular statute of limitation applies. As each state and forum has its own statutes of limitation applicable to specific cases, whether the action is filed in a state or federal court, judicial or administrative forum are important determining factors. Deciding factors include whether a contract is oral, written, for sale or lease or whether the subject matter is goods, real property, services or employment. Similarly, the cause of action or the basis of every claim in a complaint matters--it could be breach, fraud or mistake.

Limitation Period Begins to Run When the Right to Sue Accrues

The limitation period begins to run from the date of injury or of breach (when the right to sue accrues) and continues to run until the prescribed time limit expires. There are exceptions.

Extension of Time

Time to bring action is extended when "tolling" or "discovery rule" are applicable or because of an agreement between the parties. Tolling is done either by suspending the running of time, by ignoring certain periods of time (partially or fully) or by extending the limitation period in certain circumstances. Sometimes the plaintiff is unaware of the injury or breach or is unable to discover it despite being diligent. This can happen especially in cases of fraud, mistake or professional malpractice. In such cases, per the "discovery rule," the limitation period will run from the time the plaintiff actually discovers or should have discovered the injury or breach. In some matters, increase or decrease of the limitation period by contract is permissible.

Reduced Period of Limitation

The limitation can be reduced because of "laches" or contractual terms. Courts can bar equitable remedies like injunctions if the plaintiff's action is not timely even if the limitation period hasn't expired for seeking legal remedies. Conversely, when the statute bars legal remedies for delay, it may not bar equitable remedies. Under some laws, parties can contract for a lesser limitation period; acceleration clauses authorise a lender to sue for the whole amount due for a single default, even though the rights to sue for future instalments have not accrued. If there is "anticipatory breach," or the defendant has indicated he is going to breach the contract, the plaintiff can either wait until the actual breach or sue before it occurs.

Other Exceptions

By "relation back doctrine," under some conditions, amended pleadings after the limitation period are permitted to include new causes of action or parties if the original pleadings were in time. The statute of repose prescribes a limitation period that runs from the date of a particular action by the defendant regardless of any injury to the plaintiff. For any injury after that period, no action lies.

Grounds for Tolling

Some grounds for statutory or equitable tolling are a plaintiff's disability, insanity or death at the time the right to sue accrues; application of the discovery rule; a defendant's bankruptcy, death or absence; pursuit of alternative remedies by the plaintiff; the defendant's wilful misconduct or fraudulent concealment; or a statutory prohibition for bringing suit.

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