Tuesday, January 11, 2011

Statute of Limitations

A statute of limitations is established by different jurisdictions (such as states) and creates the maximum amount of time after an event has occurred in which legal proceedings must be initiated. For example under New York law there are different statute of limitation periods for the types of claims that may be brought.
  • Contracts -  Six (6) years.
  • Personal Injury and Injury to Personal Property– Three (3) years
  • Medical Malpractice – thirty (30) months or one year from discovery of a foreign object in the body or when it should have been discovered.
  • Other types of malpractice – three (3) years
  • Libel, defamation or slander – one (1) year
  • Product liability – three (3) years
  • Fraud – six (6) years.

The stature of limitations under a contract may be reduced to a shorter period as long as the parties agree to it. As third parties are not parties to the agreement they are not subject to those limitations. Here’s an example of language that would limit the contract statute of limitations:
Any legal or other action related to a breach of this Contract must be commenced no later than three (3) years from the date on which the cause of action arose, unless otherwise provided by local law without the possibility of contractual waiver or limitation.

The intent of this is to reduce the period that would be allowed for bringing an action under that contract from six (6) years to three (3). It creates the limitation only for breaches of the contract. Other potential liability such as any indemnifications for personal injury and property damage or infringement of intellectual property of third parties would not be subject to the contract limitation. The last part makes it clear that the limitation applies unless local law would prohibit it. 

The period runs from the date on which the cause arose. For example, if you had a warranty breach two years after the completion of the contract, with a three year limitation you would have three years from that date to commence the claim.

In addition to limiting the term,  another key other aspects of the agreement is to make sure that obligations for which there could be liability in the future be included as part of the list of sections that will survive the termination or expiration of the agreement.

Between you and the Supplier most of the time you may want any claims between the parties to extinguish in a short period of time. For example, you don’t want Supplier’s submitting bills for work five (5) years after the work was performed.  Who would be around to know if the work was done ? You do want the Supplier to be liable for any potential third party claims as long as you as the Buyer can be liable.

The most important section in your contract that has a connection with the Statute of Limitations is the Survival section that describes what commitments made by the parties will survive the termination or expiration of the Agreement.  If you specifically list the terms that will survive you need to ensure that what’s included in that list of surviving terms cover all the protection where the Statute of Limitations will not have lapsed. Otherwise a third party could bring a claim against you and you would not be able to make a claim against the Supplier. 

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