As a business owner or professional, you understand the importance of written contracts in ensuring that the terms of a deal between parties are legally binding. However, what happens when a party breaches the terms of the agreement, and what is the time limit for taking legal action to enforce the terms of the contract?
This is where the concept of the limitation period comes in. The limitation period is the time frame during which a party can commence legal action for breach of contract. The length of the limitation period varies depending on factors such as the type of contract, the jurisdiction, and the circumstances of the breach.
In general, most states have a limitation period of four to six years for breach of written contracts. This means that parties have four to six years from the date of the breach or the discovery of the breach to commence legal proceedings. However, if the contract is oral or implied (not written), the limitation period may be shorter, typically two to three years.
There are exceptions to this general rule. For example, some types of contracts may have shorter or longer limitation periods. For instance, in some states, contracts with government agencies may have shorter limitation periods. Similarly, in some states, contracts for the sale of goods may have a longer limitation period of up to ten years.
Furthermore, there may be circumstances that could toll (pause) or extend the limitation period. For example, if the party that breached the contract fraudulently concealed the breach, the limitation period may be extended. Additionally, if the parties agreed to a specific limitation period in the contract, that period will govern.
It is essential to note that the limitation period differs from the statute of repose, which sets a definitive deadline beyond which a legal action cannot be initiated, regardless of whether the breach was discovered or not. Statutes of repose typically apply to professions that involve long-lasting products, such as building construction and medical equipment manufacture.
In conclusion, the limitation period for breach of contract is a critical consideration when entering into a legal agreement. It is important to consult with legal counsel to understand what the limitation period is for your specific contract and jurisdiction. Improperly timed legal action may preclude your right to collect damages against a party that breached the contract, resulting in significant financial losses.