What is a statute of limitations?
Within the realm of the law, a statute of limitations refers to a distinct period of time during which a person may exercise a legal right. A statute of limitations establishes a deadline for filing a lawsuit on a grounds for suit and provides a reason for when that deadline should expire. Often, the statute of limitations is expressed in years as a simple calculation of when a person may exercise their legal right . In the case of breach of contract where there is a dispute, the statute of limitations encourages swift action by encouraging parties to exercise their legal right to sue in a reasonable time, and preserves the quality and integrity of evidence that supports claims and defenses in legal actions in general. The statute of limitations not only applies to breach of contract cases but to all legal causes of action. In other words, each cause of action has a statute of limitation that restricts the time period that a party has to file suit regarding that particular cause of action. For example, in New York actions for fraud must be commenced within 6 years after the fraud occurred.
New York’s statute of limitations for contracts
The statute of limitations specifically for breach of contract in New York is varied depending on the type of contract that is at issue. Unfortunately, New York has considered those in position of some authority to be in a better position to guard against untimeliness and so has factored this into its calculation of statute of limitations.
Generally, the statute of limitations for breach of contract is six years from the date of the breach and generally includes written contracts as well as both express and implied contracts.
While six years is the general time limit, the breach of contract claim clock may begin to run at the point at which one could have reasonably discovered that a breach has occurred. In New York, this is known as the "discovery rule," and it allows a party to file a breach of contract claim within six months after the reasonable discovery of or inquiry into the breach.
Generally, the statutes of limitations for the different types of contracts we previously discussed in the introduction are as follows:
Oral contracts: Six years
Written contracts: Six years
Contracts that can be completed within one year: Six years but no later than the time of performance
Contracts in writing involving a party’s sale of goods, personal property, or commodities: Four years
If you have any questions about your breach of contract case in New York, consult a skilled Manhattan breach of contract attorney right away.
How do you set the clock on the statute of limitations?
In most cases, a breach of contract claim is governed by a six-year statute of limitations, which means that the claim must be brought within six years of the date of accrual. The accrued date is determined by an "accrual" rule. Under New York law, the statute of limitations for a breach of contract claim "begins to run upon the cause of action accruing." For almost 40 years, New York’s Court of Appeals in Abel Holding Corp. v. Lieberman, 34 N.Y.2d 37 (1974) set out this general rule, and held that a cause of action accrued when the contract was breached, i.e., when the injury was suffered or when the liability was established.
In a more recent decision in an Article 78 proceeding, State of New York v. C.P.L.R. Art. 78 Index No. 5726-15 (Sup. Ct. N.Y. Co. 2015), which involved the Timed Gross Receipt Tax, the court stated, "for purposes of the statute of limitations, contract damages are deemed to accrue when the plaintiff has been injured, or suffered an actual loss." Although this decision was not a breach of contract action, there is a clear implication from the court’s discussion, which the court wrote in dicta, that the same accrual rule that applies to breach of contract actions may apply to the Statutory Short-Term Rentals Tax as well. Therefore, under CPLR § 213 (2), the Statutory Short-Term Rentals Tax claim accrues upon injury or when an actual loss is suffered.
In Vendor Management Solutions, Inc. v. Local Union No. 1, United Service Employees International, AFL-CIO, 117 A.D.3d 823 (3d Dep’t 2014), the Appellate Division also addressed the commencement of the six-year statute of limitations for a breach of contract claim. There, the court found that where the plaintiff alleged a knowing breach of a contractual obligation to remit vacation and severance payments, which the union was required to pay back to the vacation fund once it received the funds from the plaintiff, the contractual breach occurred at the time the plaintiff made the last payment but the result was not finalized until the plaintiff was not reimbursed for its payment. This meant that because the liability was not established until the final payment had been made, the six-year statute of limitations period did not commence until that date, even though the plaintiff had initially breached the contract at an earlier date.
Exceptions and tolling of the statute of limitations
In certain circumstances, New York courts have granted exceptions to the statute of limitations for breach of contract actions. These exceptions can extend or toll the limitations period, giving plaintiffs more time to bring their claims.
For example, if a defendant deceives or induces a plaintiff to forbear filing a lawsuit, the court may extend the limitations period. In Jewelers’ Pantry v. Schwartz, the plaintiff initiated an action for breach of contract after the limitations period had expired. 77 A.D.2d 471 (2d Dept. 1980). The defendant moved to dismiss on limitations grounds. The Supreme Court, Kings County, granted the motion, but the Appellate Division reversed. The court of appeals stated that "the limitations period is tolled where the defendant, by fraud, deception or misrepresentation, induces the plaintiff to forego commencement of a timely action." Id. at 474. Because the plaintiff "was induced not to take legal action" by the defendant’s representation that the defendant did not expect suit "for some time," the court held that "the running of the Statute of Limitations has been tolled." Id.
Additionally, unsuccessful settlement negotiations can extend the statute of limitations. In Rotblut v. Urban Development Corp., the plaintiff and the defendant entered into a settlement agreement in 1970. 63 A.D.2d 983 (4th Dept. 1978). As part of that agreement, the plaintiff agreed "to refrain from instituting or prosecuting any legal proceedings" against the defendant. Id. at 983-984. The plaintiff later violated this provision, and the defendant ultimately dismissed the action with prejudice. Id. (internal quotation marks omitted). But the plaintiff failed to recommence the action within six months, and the issue was whether the six-month tolling provision in CPLR 205 was applicable. After noting that the statute of limitations had expired before the plaintiff’s initial action , the Appellate Division held that the six-month tolling provision did not apply because, under the terms of the settlement agreement, the plaintiff "did not have an unconditional right to commence a new action, but only an exclusive right for a specified period of time following discontinuance." Id. at 984. Even though the plaintiff’s initial action had been dismissed with prejudice, the court reasoned, the six-month tolling provision had not been intended to apply. Id.
Courts have also extended the statute of limitations in cases involving an ongoing course of conduct by the defendant. In Zappia v. Greenberg, the parties entered into a lease agreement, but the defendant never tendered rent. 47 A.D.3d 835, 837 (2d Dept. 2008). When the plaintiff sought payment for the rent, the defendant "offered to pay only $2,500 representing past due rent." Id. The plaintiff rejected this offer, and the defendant again failed to pay rent due under the lease. Id. After three months of missed payments, the plaintiff sought rent under the lease agreement. Id. "Under these circumstances, . . . a course of conduct designed to frustrate the collection of rent payments" had been established, and a demand for rent at periodic intervals tolled the statute of limitations. Id. at 837-838.
New York has adopted a strict rules-based approach to analyzing exceptions and extensions to the statute of limitations for breach of contract actions. In many cases, both plaintiffs and defendants have successfully argued variations on factors such as "deception, forbearance, unfulfilled contractual obligations, course of conduct, and productive activity," but each case stands or falls on its own particular facts. Rose A. Ciardi, Who Would Stumble If They Could? Statutes of Limitations in Commercial Lease Actions, 65 St. John’s L. Rev. 89, 162 n. 465 (1991).
Consequences of expiration of the statute of limitations
If the statute of limitations expires before a breach of contract lawsuit is filed, the plaintiff cannot recover for that particular cause of action, since it has become time-barred. However, if any portion of the plaintiffs’ compensation falls within the applicable limitations period for such a claim and is not otherwise barred, an action may be brought to recover that portion of the damages for which suit is timely. Moreover, if the statute of limitations is allowed to lapse, the defendant may raise the affirmative defense of expiration of the statute of limitations, thereby preventing recovery on the time-barred breach of contract claim. In applying the statute of limitations, courts will only look to the allegations in the complaint – may not consider any information outside the complaint. Courts will only dismiss the claims if the complaint "utterly refute[s]" the possibility that the pleaded claim could be found meritorious, based upon the allegations contained within the complaint.
Helpful hints for dealing with contract limitations
The single best way to deal with the statute of limitations issue and to avoid bringing a lawsuit that is too old to work is to never allow a contractual deadline to pass without taking immediate action. For example, if you have a contract that will expire in three years from now, write down that date and set an electronic calendar reminder for two months before. That will give you plenty of time to investigate whether a claim may exist and, if necessary, bring suit before the statute of limitations expires.
Another good practice is to include express language in your contract requiring the parties to be diligent and timely in asserting their contractual rights. For instance, a standard form security agreement for instance , is likely to require periodic payments of principal and interest. The contract might provide expressly, however, that a failure by the borrower to make a timely payment "shall also be an event of default on the contract". Any such default should be preserved (or tolled) for as long as possible.
If you fall behind on regular contractual obligations, it is always best to come current on those defaults. If you owe money, pay the missed installments. If you have an obligation to satisfy some condition that you failed to complete in time, do it as quickly as possible. Document all communications with the other party. If there is a concern with meeting a contractual deadline, notify the other contracting party in advance and request an extension.