Contracts are super prevalent in everyday life. If you have a loan (e.g. for your car), then you likely have a contract specifying things like what you have to pay and when and what happens if you don’t pay when you’re supposed to. Companies rely on contracts to do business with one another all the time. I would posit that literally everything you buy has been made and transported to you by a series of companies that have contracts between them specifying what each company’s obligations are and what fee they want to be paid.
Contracts, of course, aren’t perfect. When problems arise and a lawsuit needs to be filed over, say, one party not doing what they are supposed to under the contract, one thing that needs to be examined is whether it is too late to sue. The time limit in which you have to file a civil lawsuit is called a “Statute of Limitations.” This varies not only state, but also by the type of case you want to file. If you miss this statute of limitations and then try to file your case, you will almost certainly lose your case because you’ve waited too long.
In certain rare situations, you might be able to make an argument for why the statute of limitations period should be paused for a period (e.g. one year). This is called “tolling” and, if successful, would extend the statute of limitations period by that same amount of time that the proverbial clock was paused. If you’re the plaintiff, the filing date of your case will hopefully be within this extended statute of limitations period.
In California, there are two statutes of limitations that are common when it comes to lawsuits for a breach of contract. Which one you use depends on whether the contract in question was written or oral.
- If the contract is written, the statute of limitations is four years under California Code of Civil Procedure section 337(a).
- If the contract is oral, however, the statute of limitations is only two years. That’s section 339(1) of the California Code of Civil Procedure.
There is technically a third statute of limitations in section 2725(1) of the California Commercial Code of four years that applies in situations where the contract in question pertains to the sale of goods. (In case you’re interested, “goods” is defined in section 2105 of the California Commercial Code.) This four-year statute of limitations applies regardless of whether the contract is written or oral. In my experience, this section 2725(1) statute of limitations is much more rare. In the vast majority of cases, you just need to look at whether the contract in question was written or oral to determine what the applicable California statute of limitations is for the breach you have.
As a general rule, it is prudent to have a contract in writing because it reduces the chance for misunderstandings between the parties. Instead of relying on what each party remembers about what allegedly happened, you can just read the written document signed by the parties. In most situations, though, a written contract is not required even if advisable.
In certain situations, however, a written contract is required under California law, specifically something called the Statute of Frauds. In California, that’s section 1624 of the Civil Code. The Statute of Frauds is not California-specific, of course. Other states have it as well. In New York, it’s in section 5-701 of the New York General Obligations Law.
I also put out a video on my Youtube channel about the California Statute of Frauds. Here it is:
Once you’ve determined the applicable statute of limitations, that only tells you how long a clock you have to file your case. It does not address the other critical piece of information you need — namely, when does that proverbial clock start running? Again, California law prescribes two different rules:
- If you’re talking about a sale of goods under the California Commercial Code, the 4 year statute of limitations starts when the breach occurs. There is no allowance or exception to account for a breach that is not discovered right away or could not have been discovered right away. The date of the first breach is the only date that matters and that is when the proverbial clock starts. As I said above, though, my experience is that these contracts for sale of goods under the California Commercial Code are rare.
- The far more common breach of contract situation involves the 2-year/4-year statute of limitations I mentioned above for, respectively, oral and written contracts. In those situations, there can be an allowance or exception made if the plaintiff can successfully argue that the breach was difficult to detect in some way even though the plaintiff was diligent. If the plaintiff can make that argument, the proverbial clock starts on whatever date the breach could have been discovered with the exercise of diligence. If the plaintiff can’t, then the clock starts on the date the actual breach occurs.
As always, this post is not a comprehensive exploration of this topic. Please do your own research in to topics such as whether the information I described above is still current as of the date you read this. If you do have a situation that involves a breach of contract, please do find a lawyer in your ares with whom you can discuss the facts of the problem you’re facing.
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