Statute of limitations: Overview, definition, and example
What is the statute of limitations?
The statute of limitations is a legally defined time limit within which a party must file a lawsuit or claim. Once this period expires, legal action can no longer be taken, even if the claim would have otherwise been valid. The statute of limitations varies depending on the type of claim and the jurisdiction.
For example, if a contract dispute has a statute of limitations of four years, a party must file a lawsuit within four years of the breach occurring. After that, they lose the right to take legal action.
Why is the statute of limitations important?
The statute of limitations is important because it provides certainty and fairness in legal disputes. It ensures that claims are filed within a reasonable timeframe while evidence is still available and witnesses can recall details accurately.
For businesses, clearly stating the applicable statute of limitations in contracts helps prevent prolonged legal uncertainty and ensures that disputes are resolved within a set period. This reduces legal risks and allows companies to move forward without fear of unexpected claims years later.
Understanding the statute of limitations through an example
A company enters into a service agreement with a vendor. The contract states that any legal claims related to the agreement must be brought within three years of the event giving rise to the claim. If the company believes the vendor breached the contract but waits four years to take legal action, the statute of limitations has expired, and the claim is no longer enforceable.
In another example, an individual suffers an injury due to a defective product. The law in their state provides a two-year statute of limitations for product liability claims. If they do not file a lawsuit within that time, they lose the right to seek compensation, even if they have a strong case.
Example of a statute of limitations clause
Here’s how a statute of limitations clause might appear in a contract:
“No claim, action, or proceeding arising out of or relating to this Agreement may be commenced more than [X] years after the cause of action has accrued, regardless of any applicable longer statutory period.”
Conclusion
The statute of limitations sets a time limit for bringing legal claims, ensuring disputes are resolved within a reasonable period. This legal protection helps businesses and individuals avoid prolonged uncertainty and ensures that claims are addressed while evidence remains available. Including a clear statute of limitations clause in contracts helps define the timeframe for legal action and minimizes the risk of delayed disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.