Statute of Limitations
The term “statute of limitations” is common in the legal world. You may have heard that term in relation to criminal law (there is no statute of limitations for murder, for example, in most states), but statutes of limitation also apply in civil law.
A statute of limitations is the maximum time allowed for a person to wait before they file a legal proceeding. If something bad happens, you must decide within that statute of limitations period to file a lawsuit, or you waive your right to do so. In essence, your time has run out.
Statutes of limitation exist to help society as a whole be more efficient and to allow people to move on from disputes/incidents. If you have a minor dispute with a friend/neighbor/business partner, you should not have to wonder for the rest of your life whether that person will wake up one day and decide to sue you over the dispute. In addition, evidence – the key to helping the judge or jury determine the case – is lost over time. Memories fade, documents are lost, witnesses move away. The odds of a trier of fact hearing the case and making a fair and equitable determination diminishes over time. So, we tell people that when a bad thing happens, they have a certain amount of time to file a legal claim about it or they have to just let it go.
Most statutes of limitation in California can be found in California Code of Civil Procedure Sections 312-365. Some common ones are:
- Breach of an Oral Contract – 2 years
- Breach of a Written Contract – 4 years
- Personal Injury – 2 years
- Damage to Personal Property – 3 years
If you have been sued or think you have grounds to sue someone, you must determine when your statute of limitations accrues. In other words, when did your legal claim come into existence? If we are dealing with a claim of breach of oral contract, for example, you would be able to file a lawsuit against someone (and vice versa) any time within the two years after the claim accrues.
Some claims are quite easy to date. For example, if there is an auto accident, the claim accrues when the accident occurred. It is an undisputed date, and all parties involved in the accident will doubtless be aware that an accident has occurred.
Other claims are trickier to date, which is where the discovery rule comes into play. The statute of limitations accrues when a party discovers the wrongdoing or when a reasonable person in their position should have discovered it. The statute of limitations is tolled (in other words, paused) until the basis for the legal claim is discovered – that discovery date is when the claim accrues.
For example, let’s say Sally loans Bob $10,000 on January 1, 2020, and Bob orally agrees to pay Sally back in $1,000 monthly installments starting January 1, 2021. That date passes, but Bob has not made a payment. One could argue that the breach of oral contract accrued January 1, 2021. But what if things are more complex? What if Bob, on January 2, 2021, sends Sally an email saying, “I’m so sorry I missed that first payment. I had a big bill come through, but I promise that I’ll pay $2,000 for the February 1 payment and will be on time with payments after that.” Sally says that is fine and waits. February 1, 2021, comes and goes, and Bob again misses the payment. Sally will argue that her claim against Bob for breach of oral agreement did not accrue until February 1, 2021. Though Bob had missed a payment previously, he acknowledged it and promised to make up the payment. A reasonable person would give him that chance, so she did not reasonably discover that Bob was going to breach the oral agreement until he missed the February payment.
If you’re Sally, it is better to file your lawsuit against Bob well before the statute of limitations runs. Sally does not want to argue with Bob in front of the judge about whether the breach claim accrued on January 1, 2021, or February 1, 2021. If Sally simply files her lawsuit well before the earliest possible date the statute of limitations could run, she will avoid the risk of a judge saying she waived her claim.
There is another way to toll a statute of limitations, and that is by written agreement. Let’s say Sally called her attorney on December 1, 2022. Based on our above analysis, we know that the statute of limitations is going to run on her claim soon – either January 1, 2023 or February 1, 2023, depending on whether the judge agrees Bob’s late payment promise tolled the statute of limitations.
So, Sally’s attorney quickly sends Bob a demand letter saying he owes the money and will be sued if he does not pay it. Let’s assume Bob responds that he is willing to work out a payment plan, but it will take some time – he’s out of the country or sick, or he needs to pull bank records to work out how much interest he owes, etc. If Sally trusts that Bob will resolve the dispute and lets months go by, she will have waived her statute of limitations and be barred from filing her lawsuit against Bob. However, initiating a lawsuit is expensive, so if Sally believes she and Bob will work out the dispute pre-litigation (meaning, without filing a lawsuit) that will be better for everyone. In that case, she and Bob can agree to toll the statute of limitations. The attorney can draft up a simple agreement that both parties sign stating that the statute of limitations on this dispute is about to run, but the parties are trying in good faith to resolve it, so they agree that the statute of limitations is tolled until a certain date (say, July 1, 2023). If Sally files a lawsuit before that date, it will be deemed timely.