California’s Statute of Limitations on Contracts Explained

Overview of California’s Statutes of Limitations for Contracts

Every contract dispute has a beginning. Finding its way through the dispute and successfully resolving it is what clients hire their attorneys for. But there is a point in every dispute that the case simply has to be resolved, and that’s where the concept of the statute of limitations applies. In other words, if your claim on that contract has exceeded the statute of limitations, so long as the defendant raises the deadline issue, you could lose no matter how strong your case would be otherwise.
The statute of limitations on contracts in California is determined by the type of contract involved. For written contracts , the statute of limitations is four years. This means if the contract was not fulfilled or was otherwise broken on January 1, 2014, a lawsuit can be filed until January 1, 2018, but not after that date. For all other types of contracts, the deadline for filing suit is two years. However, even if the statute of limitations has ended, and the defendant does not raise the issue, a jury is allowed to assess the effects and just reward of the litigants conduct on the merits of the case.

What is a Statute of Limitations?

At its core, the statute of limitations specifies a deadline within which a lawsuit must be filed. In practical effect, this means that if you have been wronged and do not file suit within the statute of limitations, your right to sue evaporates. Each state has a statute of limitations which covers the various causes of action which might arise. Often a statute of limitations makes sense – it would be unfair for someone to try to sue someone else over a contract dispute which happened years prior. With that same contract dispute, evidence from the other side would be more difficult to gather, witnesses would be harder (if not impossible) to locate, and thus preparing a defendable case becomes more and more difficult as time passes. Moreover, the statute of limitations prevents plaintiffs from inappropriately using the threat of a lawsuit to gain leverage in a business settlement negotiation by actually filing a lawsuit. The statute of limitations is good policy in that it encourages and enhances the chance that the parties involved will settle their disputes out of court without wasting the courts time, judicial resources, and taxpayer dollars.
With respect to contract law, California has a number of differing statutes of limitations depending on the type of contract dispute at issue and how you attempt to litigate the matter. To start with, there are two main interpretations of how to calculate the statute of limitations period. In 1952, California courts decided that the statute of limitations begins running when the cause of action accrues. What does that mean? As a general rule of thumb, you can think of that as meaning that the statute of limitations starts to run when the wrongful act giving rise to the cause of action is discovered or would have been discovered with diligent investigation by the injured party. This general rule is subject to many exceptions, however, all of which can dramatically affect the timing of the statute of limitations.

Time Restrictions for Written Contracts

When it comes to filing a lawsuit over a written contract, California law imposes a strict four (4) year statute of limitations period (longer than the two year time period imposed for oral contracts in California). This time limit, established by California’s Code of Civil Procedure § 337, generally begins to run off when the contract’s terms are breached; when the creditor has suffered damages:
"The four years have elapsed from the time the cause of action accrued [breach of a written contract] … except that if the person who is liable on the contract …is outside the State, or is in the state under a contract for the performance of services … when the cause of action accrued, and if that person … is not later a resident of the State, an action may be brought at any time within one year after the date that person comes or returns to this State."
Cal. Civ. Proc. § 337(1); see also Cal. Civ. Proc. § 351.
Requires Collection Actions for Fraud to be Filed within Three (3) Years
If the breach of a written contract is fraudulently concealed, California’s Code of Civil Procedure § 338 creates an exception to the four (4) year statute of limitations, intelligently providing an easier way for creditors to enforce a contract:
"Within three years: An action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake."
Cal. Civ. Proc. § 338(4). Thus, a creditor’s time limit for filing a lawsuit based on a fraud requires collection of his or her losses within three (3) years of discovering fraudulent concealment of those losses.

Time Restrictions for Oral Contracts

In California, the time limit for suing on an oral contract is two years from the time the cause of action accrued. Cal. Civil Proc. §339(1). Until recently, reviewing courts had not specified what acts are necessary for a breach of an oral contract to accrue (i.e., to start the statute of limitations countdown), leaving the question unanswered.
In 2010, the California Supreme Court observed that for a breach of an oral contract, a cause of action accrues upon non-performance. Lee v. Old Republic Ins. Co., 195 Cal. App. 4th 1315, 1320-21 (1st Dist. 2011) (citing Kaljian v. Menezes, 23 Cal. App. 4th 541, 554 (1994)). However, this does not resolve the question: what action amounts to "non-performance"? On this, the California Supreme Court is silent. Unfortunately, it doesn’t seem like an answer is coming any time soon. In re Estate of Young, No. G041214, 2010 WL 3749483, 42 Cal. Rptr. 3d 443 (Cal. Ct. App. Sept. 27, 2010) (finding the statute of limitations to be 3 years for an oral contract and observing that the California Supreme Court had still declined to answer the question).
The California Supreme Court’s silence has led to uncertainty. The elements of oral and written contracts are the same: the party seeking relief must prove the following in order to sustain a breach of contract claim, regardless of whether the contract is written or oral:

(1) the existence of the contract;
(2) plaintiff’s performance or excuse for nonperformance;
(3) defendant’s breach; and
(4) damage to plaintiff. Special instructions on the last element are available at no extra charge.

Goodman v. Kennedy, 18 Cal. 4th 1007, 1027 (1998). To date, no California cases have addressed whether there is a different statute of limitations period when the oral contract involves non-real property.

When Special Circumstances and Exceptions Apply

The standard statute of limitations on contracts in California might be modified depending on the circumstances. However, the existence of these exceptions and special circumstances does not mean that the statute of limitations can be indefinitely extended.
One exception to the usual rule is that the statute of limitations might be extended in case of fraud. For this purpose, there are two different sets of rules that California courts have created.
One rule allows for an extension of the statute of limitations. California Code of Civil Procedure section 338(a) extends the statute of limitations on a contract for each day after the plaintiff discovered the fraud. In other words, the statute of limitations does not kick in until the plaintiff has discovered or should have discovered the fraud. However, this extension applies only to contracts for the sale of real estate or otherwise involving a real property. According to California Civil Code 2079.4, a real estate agent has a duty to disclose the existence of a concealed material fact of which only he was aware. The statute of limitations on the agent’s liability to disclose the existence of the fact starts ticking only after the buyer’s actual or constructive notice of the undisclosed fact .
A separate set of rules, both designed to extend the statute of limitations, applies to fraud claims. For this purpose, California courts have recognized a "discovery rule". This rule also extends the statute of limitations on a fraud claim until the plaintiff has discovered or reasonably should have discovered the claim.
The running of the statute of limitation on a fraud claim will be extended if the fraud claim is based on breach of contract. In these cases, if the plaintiff was not aware of the breach, the statute of limitation may not start running until the plaintiff actually discovered the breach of the contract. This rule was articulated by the California Supreme Court in the 1930 case of Kling v. Pacific Mutual Life Insurance Company of California. The court held that the statute of limitation does not hone on breach of contract because fraud "lies only where there is an intentional, wrongful act" and that "a mere breach of a contractual obligation will not always give rise to an action in tort upon the theory that some fraud has been committed by the breach of the contract." Because a different statute of limitation applies to a breach of contract, this would create practical problems, according to the court.

The Cost of Missing the Time Limit

The consequences for the plaintiff missing a deadline are dire. If you do not file an action within the correct statute of limitations, you will lose your right to do so, meaning you’ll be barred from pursuing any legal recourse. The courts in California will not file an action if it is received after the statute of limitations has lapsed. If you miss the statute of limitations, you will not have relief even if you did eventually need such relief. Aside from the damage to your case, the bottom line is that missing the statute of limitations can be extremely detrimental as that is your ability to pursue justice and have the courts enforce the law in your favor.
The same rule applies whether the defendant is a natural person or a corporation. Many attorneys don’t understand the nuances of personal injuries and the importance of filing within the statute of limitations. An understanding law firm will never let that happen. You should never be worried about your case being filed in time when you retain our services.

How to Ensure that You Protect Yourself

In California, timely filing a lawsuit in an agreement dispute can save you thousands of dollars. Nobody likes to go to court, and the last thing you want is to have to go to court a significant amount of time after the initiation of an agreement. That’s the thing about agreements, though. When you sign a contract, the expectation is that both you and the other contracting party will uphold your end of the deal until the conditions for satisfaction of the agreement have been completely fulfilled.
For individuals and businesses alike, the best way to protect your rights and interests within each agreement is to take action as soon as any sort of controversy arises. If the dispute is between two individuals, then the individual who is first harmed is legally entitled to place their claims against the other party. On the other hand, if the agreement was negotiated by two businesses, then the courts may establish that the initial claimant is legally entitled to file as long as they were truly harmed in some way.
As an example of this legal rule in action, say you own a home out in the country and have two dogs who are nothing if not loyal. One day you hear them barking and venture outside to see what’s going on. Turns out your neighbor is field cutting grass, which happens to make your dogs unnecessarily excited. You advance towards your neighbor to ask if he could please avoid cutting his grass while you’re home (or at least earlier in the morning) so as not to disturb your dogs, but he grows hostile. You raise your voice, he raises his voice, and things eventually escalate into a physical fight. Someone ends up in the ER and the hospital’s trying to sue you for the medical expenses.
In this example, it would seem as though your neighbor is at fault because he was the first to be confrontational and the only one that directly referred your dogs as dangerous. However, since you were the one to advance on him and approach him, contrary to his physical space and until he was directly physically threatened by you, you are legally the one who initiated the fight. That means you have to pay for his medical expenses. As for him, he also gets a say in the matter and could choose to file a law suit against you, too.
So how do you protect your legal rights and inhale victory? Be proactive and file before you are filed against.

Seeking Help from an Attorney

In case you find yourself involved in a dispute over whether the statute of limitations for a particular contract has run or not, it is very important for you to consult with a legal professional to better understand your rights and obligations . Because there is no one size fits all approach and because there are several different exceptions that can extend the time limit to bring a lawsuit against a party to a contract, whether properly pled or not, the complexities of the statute of limitations would require you to seek the aid of an experienced attorney to help navigate through the various defenses that may be raised.