California Statute of Limitations on Contracts

What is a Statute of Limitations?

A statute of limitations is an important legal concept that applies to many causes of action. A statute of limitations establishes a time limit for bringing a lawsuit after a cause of action has arisen. If a lawsuit is not filed during the time period set forth in the statute of limitations, the lawsuit is barred and cannot be filed in the future. In some ways , statutes of limitations function as self-executing affirmative defenses: Once the bar falls into place, it is simply an available defense that negates the cause of action.
Statutes of limitations are frequently used in contract law to limit the ability of a party to sue on a contract. For example, if you are a party to an agreement that required you to pay…

California Statute of Limitations on Written Contract

As for written contracts, California’s statute of limitations is summarized in California Code of Civil Procedure section 337:
Within four years:
An action upon any contract, obligation or liability, express or implied, except as provided in Section 3604 [interest in land], 336b [an action for recovery of money or damages under Division 4.5 of the Civil Code], 337a, 337c, or 343.
Limitation is tolled in certain instances. See California Code of Civil Procedure section 351 and 356. Further the four year statute of limitations will be reduced to two years if the underlying contract is for the sale of goods. See California Code of Civil Procedure section 339.

Statute of Limitations on Oral Contracts in California

When discussing the statute of limitations for contracts, we need to talk about the different types of contracts. Contracts can either be written or oral. Written contracts are usually the more common form of contract we see in everyday life. That does not mean that oral contracts are not used. Oral contracts are just more uncommon. Oral contracts can be used in everyday life. For example, going to buy a car from the dealership can be considered an oral contract. In California, oral contracts do not have a statue requirement to be valid. What this mean is that absent a statute of frauds provision, a contract can be formed. However, proving an oral contract can often times be much harder than a written contract.
In California an oral contract has a four year statute of limitation. This is the same statute of limitation as a written contract. But there are some huge differences between the two contracts. If you are dealing with a written contract, you know that if you do not sue within four years, your chances of winning have diminished greatly. With an oral contract, you still have four years to sue. But since oral contracts are harder to prove, your chances to win may diminish quicker. So it is critical that you do not delay. If you think a contract may have been breached, make sure to bring a lawsuit within the four years.

Exceptions and Special Circumstances to the Statute of Limitations

Rarely is any area of the law neat, tidy or free from exceptions. One area where exceptions can be found applies to claims for breach of contract. The California Court of Appeal held that a fraud claim can lie in cases where the agreement between the parties converts the fraud claim into a breach of contract claim as a means of obtaining damages under the contract. (Desai v. Wheeler (2016) 245 Cal.App.4th 956.) A breach of contract claim taking the form of a fraud claim lies where a party fails to grant the party its bargain under a contract containing a promissory fraud claim. (see also California Civil Procedure before the Court, No. 7).
Fraud can be applied to contract actions, but fraud must be pled with specificity. However, there is a doctrine called equitable tolling where the courts will stay the clock on a statute of limitations. This would be situations where the notice is not adequate notice or where there is some other fraud. Equitable estoppel is available as an exception to the statute of limitations where the defendant makes some affirmative misleading statement or act designed to prevent the plaintiff from asserting his rights and which actually induces his inaction to avoid damages. Equitable estoppel may also preclude the raising of the statute of limitations when a defendant makes representations or assurances, upon which the plaintiff reasonably relies to his detriment in failing to bring a timely action.
Courts will also apply doctrines of equitable estoppel or equitable tolling, perhaps stretching the stitch a bit in some cases. This is especially true where claims are in a vague area like real estate disputes. Statutes of limitations may also be tolled in class actions. A class action suit is an action that is brought by a person on behalf of a class of people having a common claim. The applicable statute of limitations will be tolled during the time a putative class action is pending and until certification is made. A putative class action is one where there is a class of people defined but the court has yet to make an official ruling on whether the class is indeed a class.
While the above are all clear exceptions to normal statutes of limitations, there are other scenarios that will shorten the statute of limitations. If a claim is filed in a different state where the statute is shorter than in California, then the California statute is shortened to the shorter length.

Effect of Statute of Limitations in a Breach of Contract Case

The statute of limitations on contract claims means that if a party files suit after the statute has run out – then the party will lose. For example, on written contracts, the statute of limitations is 4 years. Since the statute of limitations is a way to encourage parties to promptly file suit so that memories are fresh and evidence is not stale , it is also a defense in the hands of the other party that the contract claim is barred by the statute.
There are certain exceptions to allowing the statute of limitations to be used as a means to defeat a claim. Those exceptions are:
(a) a party verbally acknowledges or promises to pay the debt;
(b) a party makes a payment on the debt;
(c) other public policy reasons (such as sexual assault) which a statute expressly states is not subject to a statute of limitations (such as a verbal acknowledgment of sexual assault).

Practical Tips for Managing Your Contracts

To avoid pitfalls associated with the statute of limitations, parties to contracts should take steps to ensure that they are aware of all potentially relevant deadlines and manage contracts so as to minimize risk. This involves setting up internal protocols for tracking and managing contracts. These protocols may include maintaining a centralized system for keeping records of contracts and related documents, which facilitates tracking individual contracts as well as the organization’s overall contract portfolio. Critical dates for required notice, performance, and other obligations should be highlighted for ease of reference and to ensure the appropriate individuals are alerted as those dates approach. Records should be maintained and reviewed in order to identify any contracts close to the applicable statute of limitations, and the status of these contracts should be communicated internally. Where necessary, parties should seek legal advice regarding the statute of limitations, such as in cases of questions concerning the duration of the limitations period, renewal of the limitations period, or when the statute of limitations might be tolled. Seeking advice regarding the statute of limitations upon receipt of a claim or complaint will allow a party to fully understand its rights and obligations under the contract in order to develop a full and effective response.

Seek Legal Counsel

For specific cases, you should consult a trained legal professional. Only an attorney who is knowledgeable in California law will be able to tell you if you are affected by the California statute of limitations for contracts. As a general rule of thumb , you should always seek professional advice for any legal matter. If you have not been paid for a deposited check or your car dealership has already taken legal action against you for your unpaid debts, it is important that you act quickly to avoid further consequences.