If you need to file a lawsuit, you do not have an unlimited amount of time to do so. No matter what type of case you are filing, there is always a limit to when you can sue. A statute of limitations applies to most criminal actions and all civil actions. Once the statute of limitations passes, you can no longer file a lawsuit. Thus, you need to be aware of the timelines in your case or else you can lose the right to a financial recovery or other legal relief, such as an injunction or specific performance of a contract.
There Is No Grace Period When Missing the Statute of Limitations
The statute of limitations is a firm deadline. It does not matter whether you miss it by a day or a month or a year. So long as you are late, you cannot sue. Even if you made an innocent mistake that caused you to slightly miss the deadline, there is no forgiveness or mercy. In a lawsuit, late is late with very few exceptions. Although the result may seem harsh, this is a well-established principle of law across every jurisdiction in the country.
Texas Statute of Limitations Law
The actual statute of limitation for Texas contract claims is found in chapter 16 of the Texas Civil Practice and Remedies Code.
The four-year statute of limitations applies to any cases that arise under a contract, including:
- Legal actions seeking specific performance of a contract
- Lawsuits seeking breach of contract damages
- Cases against insurance companies for failure to cover damages according to an insurance contract
The four-year statute of limitations could even apply to some personal injury-related cases. If someone needed to sue their own insurance company under their personal injury protection or their uninsured motorist coverage, the lawsuit would arise out of the contract.
The statute of limitations for contract actions applies to both oral and written contract actions. You do not need to have anything down in writing to be able to sue someone. If you believe that they made you a promise, and that it was binding, you can file a lawsuit.
Parties to a contract could agree to shorten the statute of limitations. However, the statute of limitations cannot be reduced to less than two years unless the contract is regarding a sale of a business with one of the parties paying or receiving a minimum of $500,000. Under the Texas Uniform Commercial Code, the parties can reduce the statute of limitations to as little as one year. The statute of limitations would be effective at the time that the contract was signed.
However, parties cannot extend the statute of limitations beyond the four-year limit. The law exists for a reason, and its protections cannot be waived.
The Policy Reasons Behind a Statute of Limitations
The statute of limitation exists for policy reasons. The law aims to be fair to all parties involved in potential litigation. It would be unfair for someone to be sued without warning or notice years into the future. They may no longer have access to the evidence and witnesses that they need to prove their case. The law tries to balance the interests of both plaintiffs and defendants. Thus, there is a hard and fast cut off to your right to sue under a contract.
How the Statute of Limitations Plays Out in Your Case
Should the defendant believe you violated the state of limitations, they would plead the statute of limitations as an affirmative defense when they file their answer to your lawsuit with the court. They would argue that you do not have the right to sue because you missed the deadline. If the defendant can successfully show that your case was filed late, the burden of proof would shift to you to demonstrate why you filed late—and why it would fit into one of the exceptions to the statute of limitations discussed below that would allow your case to proceed.
If the defendant’s argument is successful, the court will not hear your case at all. You will not get your day in court on the merits of the claim. The defendant would have no further obligation to answer your claims substantively. Instead, the court will dismiss your case because you do not have any cause of action. Once the deadline passes, it goes away entirely.
Even if a defendant does not raise the statute of limitations on their own, a court may do it. A court cannot hear a case when you do not have a right to sue. If the defendant brings the issue to the court’s attention, and the judge finds you filed your complaint after the statute of limitations passed, it is not necessary for a judge to dismiss the case.
There Are Limited Exceptions to the Statute of Limitations
There are some exceptions to the statute of limitations that may prevent a judge from dismissing a lawsuit filed after the statute has run. However, these exceptions are few and narrowly construed. Since there are important policy reasons for the statute of limitations, the law aims for some certainty. If there were many exceptions, or if they were liberally construed, defendants would lose some of their protection from surprise lawsuits years in the future.
There is one major exception that could apply in contract disputes. When the defendant has acted fraudulently, and they have kept you from learning about the fact that you have been defrauded, you would get additional time to file a lawsuit. Here, the statute of limitations would begin to run at the moment you realize that you were defrauded.
When the Statute of Limitations Begins to Run in Contract Law Cases
The same principle could apply in other contract law cases not involving fraud. Generally speaking, the statute of limitations begins to run at the time that you knew, or you should have known, that you have a cause of action. The cause of action does not begin on the date of the action or omission. This is known as the discovery rule.
Of course, you would need to exercise your own due diligence in discovering that you have a right to sue. If you were willfully blind, or you did not appropriately investigate your own circumstances, you may not be able to claim that you did not know of your right to sue.
There are two factors that go into determining whether you acted with due diligence:
- Whether you acted as an ordinary and prudent person would under the circumstances
- Whether you acted diligently until the defendant was actually served with the lawsuit (This applies when there are delays in serving the defendant and they’re not served until after the statute of limitations passes.)
The Application of the Discovery Rule Is Extraordinary Relief
You cannot always count on the court to apply the discovery rule. When you ask to rely on it to excuse a filing after the statute of limitations runs, the court will be very interested in what you did and did not do. If you are arguing that the discovery rule should apply, the court would look at the facts of the situation to examine your exact actions or inactions. For example, there may be cases where the law imposes certain duties upon you. In a case that involved royalty rights, the intellectual property owners were not excused from “exercis[ing] due diligence in enforcing their contractual rights, express or implied, within the statutory limitations period.”
In fact, the Supreme Court of Texas has made clear that applying the discovery rule should be the exception rather than the rule. The court explicitly stated that these cases should be “rare.” However, there may be some instances in which a breach of contract would be “inherently indiscoverable.” The court has stressed that the policy behind the statute of limitations is important, and the discovery rule should not often be used to defeat it.
You Need to Act in Some Way While the Contract Is Ongoing
One who signs a contract may have ongoing obligations during the course of the agreement to verify performance. For example, they may need to ask a contractual partner for the documentation that is necessary to verify performance of the contract. If the contractual partner does not provide the correct information, the beginning of the statute of limitations could be delayed. Otherwise, the start of the time clock could occur when the prospective plaintiff should have asked for the relevant information.
There is often an issue of when the statute of limitations would be deemed to have started when there is a continuing contract. The statute of limitations would begin to run at the earliest of the following:
- The time the work is completed
- The time the contract is terminated under its own terms
- The time the defendant anticipatorily repudiates the contract and the plaintiff adopts the repudiation
In addition, under chapter 16 of the Texas Civil Practice and Remedies Code, you may also get a 60-day grace period to refile your case if you had previously filed it in a court that lacked jurisdiction. Thus, you would have a limited amount of time to refile it in the correct court without having to worry about the statute of limitations.
You Need to Act but You Do Not Have to Rush
When you are considering a breach of contract case, you normally do not have to rush to file a lawsuit to meet the statute of limitations, unless a shorter time period applies due to an agreement of the parties. Four years should give you plenty of time to file your case. You do not need to run to court to make sure that you beat the deadline. If you do, you could run the risk of filing a complaint that is not sufficiently supported and could fall victim to a motion to dismiss the case.
However, you should not wait too long to begin the legal process in your case. Given the uncertainty that exists in litigation, there’s no guarantee a court would agree with your argument about when the statute of limitations began running in your breach of contract case. It is not like a personal injury case, where there is rarely a question about when an injury occurred. You can expect that the defendant would try to move up the clock retroactively if it meant that they could get your case dismissed.
A breach of contract case requires evidence to show that someone else did not live up to their obligations. If the language of the actual contract was ambiguous, a court would need to look to external evidence to show what the parties may have meant when they signed the contract. You would need your own evidence to prove your case. If you wait too long to begin the legal process, you may lose key proof that you need for your case. It is always better to contact a lawyer now and begin to work on your case, even if you do not file it right away.
Contact a Houston Business Law Attorney Today
The Houston breach of contract lawyers at Feldman & Feldman work with clients to file breach of contract cases. Likewise, if you have been sued for breach of contract, we can defend you from the allegations. Your first step is to speak with an attorney during an initial consultation.