In Texas, the statute of limitations for breach of contract is four (4) years. The period begins from the day the contract was breached.
What is a statute of limitation?
The statute of limitations first appeared in early Roman law. It later developed into the criminal and civil common law of England. The purpose of the statute of limitations in a breach of contract context is to limit the time a plaintiff has to bring a lawsuit. This is because:
- a plaintiff should pursue its breach claims with reasonable diligence;
- a defendant might have lost evidence to disprove a stale breach claim; and
- long dormant breach claims can work an injustice on a defendant.
Essentially, the law will not award a plaintiff for “sandbagging” its breach claims, or failing to exercise reasonable diligence over its contracts.
Each state has its own statute of limitations period. They range anywhere between 3 to 15 years depending on the particular state’s law. Thus, knowing what state’s law governs your contract is vital.
What is a Breach of Contract?
A breach of contract occurs when a party fails or refuses to do something it has promised to do. Understanding when the breach occurs is paramount. It is not necessarily when the other party fails to meet its ultimate obligation on the contract. Rather, it is a failure to do something it had promised to do under the contract. A recent case from the Dallas Court of Appeals illustrates this concept.
Example Texas Breach of Contract Case
In this case, a buyer of delinquent car loans sued the seller for breach of contract. The buyer claimed the breach occurred when the seller did not deliver “account documents” within ten business days of the “effective date.” The effective date of the contract was June 28, 2007. Seller had until July 13, 2007 to meet its obligation.
Accordingly, when Seller did not comply on July 13, 2007, the statute of limitations began to run. Thus, buyer had four years (July 13, 2011) to bring suit for breach of contract. But, Buyer did not bring suit for breach of contract until January 3, 2012, well after the statute of limitations had passed. Nevertheless, the trial court awarded over $3 million in damages to buyer.
The Dallas Court of Appeals reversed. It held that the buyer brought no evidence asserting that its breach of contract claim began to run on any date other than ten days after the “effective date” of the contract. Therefore, seller conclusively established that all claims for breach of contract were barred by the statute of limitations. Buyer’s award of $3 million in damages was reversed.
The concept of the statute of limitations is simple. However, the complexities of modern commercial life are not. With that in mind, you must be aware that the law expects people to exercise reasonable diligence in bringing actions for breach of contract.
Whether it is two private parties contracting, or sophisticated businesspeople, the law holds both to the same duty, with very few exceptions. Therefore, procrastinating on a breach of contract action, or simply failing to recognize it, can have serious consequences on your legal rights and remedies.