The statute of limitations sets a deadline for filing a lawsuit. For contract disputes, this means you have a limited time to take legal action after a breach occurs. Missing this deadline can permanently bar your claim, regardless of how valid it is. Understanding the applicable statute of limitations is essential for protecting your legal rights.
Statutes of limitations for contract claims vary by state, typically ranging from 3 to 10 years for written contracts and 2 to 6 years for oral contracts. Written contracts generally have longer limitation periods because the existence and terms of the contract are more easily proven. Some states, like California, allow 4 years for written contracts and 2 years for oral contracts, while others, like New York, allow 6 years for both.
The clock typically starts running when the breach occurs—not when you discover it. However, some jurisdictions apply the 'discovery rule,' which starts the clock when the injured party knew or should have known about the breach. This distinction matters in cases where a breach isn't immediately apparent, such as defective construction or concealed fraud.
Several events can affect the running of the statute of limitations. Tolling temporarily pauses the clock under certain circumstances, such as when the defendant is out of state, the plaintiff is a minor or incapacitated, or the defendant concealed the breach. Acknowledgment of the debt or partial payment by the breaching party may restart the clock in some jurisdictions.
Choice of law provisions in your contract can affect which state's statute of limitations applies. If your contract specifies that it's governed by the laws of a particular state, that state's statute of limitations typically applies. Without a choice of law provision, determining the applicable statute can be complex, involving analysis of where the contract was formed, performed, and breached.
To protect your rights, take action promptly when you discover a potential breach. Document the breach and your losses, send written notice to the breaching party, consult with an attorney to understand your options and deadlines, and preserve all evidence related to the contract and breach. Even if you hope to resolve the dispute informally, be aware of the limitation deadline.
Some contracts include their own limitation periods that are shorter than the statutory period. Courts generally enforce these contractual limitation periods if they are reasonable. Review your contracts for such provisions so you're aware of any shortened deadlines for bringing claims.
The statute of limitations is an affirmative defense—meaning the breaching party must raise it. If they don't, the court won't apply it automatically. However, relying on the other party's failure to raise this defense is extremely risky. The safest approach is always to file your claim within the applicable limitation period.
