Key Takeaways

  • A statute of limitations sets the legal deadline to file a contract lawsuit, ensuring fairness and reliability of evidence.
  • In California, oral contracts generally have a 2-year statute of limitations, while written contracts usually have a 4-year statute of limitations.
  • Certain contracts, like real estate title insurance, may have shorter limitations.
  • Tolling rules (such as defendant’s absence from the state, minority, or incarceration) can pause or extend the limitation period.
  • Contracting parties can sometimes shorten—but not unreasonably restrict—the statutory period through agreement.
  • The accrual date (when the breach occurred or when it was reasonably discovered) is critical for calculating deadlines.
  • Failing to file before the statute expires usually bars the claim entirely.

What Is the Purpose of the Statute of Limitations?

The reason why legislatures prescribe time limits for filing lawsuits is that the passing of time reduces the reliability of evidence.

For example, statutes of limitations establish deadlines for suing. When a suing party fails to file a lawsuit before the time limit, a defendant can defend the suit by invoking the statute of limitations. If the defendant can prove that the statute of limitations can be applied to the suit, the case will be dismissed.

California and other states use the statute of limitations to ensure that everybody gets a fair trial in contract lawsuits.

When Does the Statute of Limitations Begin to Apply?

The statute of limitations comes into effect from the date when a party makes a claim. Typically, courts call the commencement date "accrual" of the "cause of action." It's the point where the plaintiff has a reason to file a lawsuit. However, some circumstances and events can delay the statute of limitations, resulting in a longer duration of the time limit from the period when the defendant committed the breach.

For example, a party wants to sue another for assault and battery and the statute of limitations for these charges is two years. In a typical lawsuit, the plaintiff will be able to sue the defendant two years from the date when the defendant committed the assault and battery.

Accrual and the Discovery Rule in California

In California, most contract statute of limitations cases begin when the breach occurs. However, under the “delayed discovery rule,” the period may start later if the injured party could not reasonably have discovered the breach at the time it happened. For example, if a hidden defect in a service contract is uncovered years later, the statute might not begin until the plaintiff discovered, or should have discovered, the harm. Courts carefully analyze whether the plaintiff acted diligently in uncovering the issue.

Do All States Have the Same Statute of Limitations?

States have different statutes of limitations, and federal courts and state courts also have different statutes of limitations. It also varies according to the claims involved in the lawsuit.

Comparison With Other Civil Claims in California

While contract disputes have their own deadlines, California law sets varying statutes of limitations for other civil claims. For example:

  • Personal injury claims: 2 years from the date of injury.
  • Fraud claims: 3 years from discovery of the fraud.
  • Property damage claims: 3 years from the event causing damage.

This context matters because a contract case may overlap with other claims, such as fraud or negligence. Plaintiffs must ensure they pursue each claim within its applicable time frame.

What Is the California Statute of Limitations on Oral Contracts?

Section 339 of California's Code of Civil Procedure prescribes a statute of limitations of two years for oral contracts. Under this provision, a plaintiff must sue a defendant within two years from the time an oral contract was breached.

Is an Oral Contract Enforceable in California?

Except where a statute requires a contract to be written, an oral contract is enforceable in California courts. For example, Section 7159 of California's Business & Professional Code requires that home improvement contracts between a property owner and a contractor must in written form.

Disadvantages of Having an Oral Contract

It's difficult to prove an oral contract in court as it requires witnesses and other strong evidence that maybe had to provide.

What Is the California Statute of Limitations on Written Contracts?

Under section 337 of California's Code of Civil Procedure, most written contracts have a four-year statute of limitations. Plaintiffs must sue the defendant within four years of the alleged breach of a written contract, or similar event. However, the section also states that certain written contracts that involve title insurance and real-estate titles will have two-year statutes of limitations.

Special Rules for Real Estate and Secured Transactions

Although most written contracts in California have a 4-year statute of limitations, certain categories differ. Title insurance contracts and real estate title matters often have a 2-year period instead of four. Additionally, contracts secured by a mortgage or deed of trust may have unique filing deadlines, depending on foreclosure laws and lender rights. Businesses should carefully review whether their agreement falls into one of these exceptions.

What Circumstances Trigger a Tolling of Statute of Limitations in California?

Certain circumstances can suspend the statutes of limitations for a period, even when the California statute of limitations seems to have expired, including:

  • When a party in the lawsuit is incarcerated, the statute of limitations is suspended under Section 352.1 of California's Code of Civil Procedure.
  • If a party in the lawsuit leaves California
  • If a party in the lawsuit is a minor
  • California courts can also decide to suspend the statute of limitations in exceptional cases where it is required for a fair trial of the lawsuit.

Bankruptcy and Other Tolling Considerations

In addition to incarceration, minority, or absence from the state, California recognizes tolling during bankruptcy proceedings. If a defendant files for bankruptcy, the automatic stay can temporarily suspend litigation deadlines. Once the stay is lifted, the statute resumes. Similarly, mental incapacity of a party may toll the limitation period until competency is restored.

Can Contracting Parties Shorten the State's Statutory Statute of Limitations Period?

California courts permit parties in a contract to add a provision in the contract which reduces the state's prescribed time limit for statutes of limitations. The terms of a contract which shortens a statute of limitations are valid if it allows enough time to pursue legal redress.

Risks of Contractual Modifications

Although California permits parties to shorten the statutory period, the courts strike down provisions that are unreasonable or unconscionable. For instance, a clause requiring a lawsuit within just a few months might be unenforceable because it denies a fair chance to pursue remedies. Businesses should balance efficiency with fairness when drafting these provisions. Courts generally uphold modifications that still give parties a reasonable opportunity—such as reducing four years to two—provided the agreement was freely negotiated.

Frequently Asked Questions

  1. What happens if I file a lawsuit after the statute of limitations expires in California?
    The defendant can raise the statute of limitations as a defense, and the court will usually dismiss the case.
  2. Does California’s discovery rule apply to all contract disputes?
    Not always. It applies mainly in situations where the plaintiff could not reasonably have discovered the breach earlier.
  3. Can an oral contract ever have a statute of limitations longer than two years?
    No. California law fixes oral contracts at two years, though related fraud or tort claims may have different deadlines.
  4. How do bankruptcy proceedings affect the statute of limitations in a contract claim?
    Filing for bankruptcy generally pauses (tolls) the statute of limitations until the bankruptcy stay is lifted.
  5. Can I agree to waive the statute of limitations in a California contract?
    Parties may shorten—but not completely waive—the statutory period. Clauses that eliminate all legal recourse are unenforceable.

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