Step One: Determining Which Statute of Limitations Applies
The Six Year Statute of Limitations Applies Most of the Time
Most breach of contract cases in Tennessee will be subject to the six (6) year statute of limitations codified at T.C.A. §28-3-109. There is one (1) other possible statute of limitations which could apply in a breach of contract case which would require someone to file suit in less than six (6) years. There is another statute of limitations which might allow a period longer than six (6) years. Lastly, there is the possibility that none of the statutes of limitations codified in Tennessee apply because the parties have contractually agreed to a limitations period.
The Four Year Statute of Limitations for UCC Cases
If the breach of contract is for the sale of goods, the Uniform Commercial Code (“UCC”) will apply. The statute of limitations for any contract for the sale of goods under the UCC is four (4) years. T.C.A. §47-2-725
The Ten Year Statute of Limitations for Demand Notes
In Tennessee, demand notes are subject to a ten (10) year statute of limitations. T.C.A. §28-3-109
Contractually Agreed to Limitations Periods May Be Shorter Than Four Years, Six Years, or Ten Years, and Are Enforceable in Tennessee
In many breach of contract cases, particularly insurance policy breach of contract cases and disability insurance policy cases, a statute of limitations placed in the parties’ contract will govern. Even if the six (6) year statute of limitations might otherwise apply, a breach of contract case might have to be filed much sooner in order not to be barred by a shorter limitations period which was agreed to by the parties. Such contractual statutes of limitations are fully enforceable in Tennessee, and trump the statutes of limitations in the Tennessee Code. Under Tennessee law, a contractually agreed to limitations period for filing a lawsuit is enforceable so long as it provides a “reasonable time period” for filing a lawsuit. One Tennessee court upheld a contractually agreed to limitations period of sixty (60) days. See, Morgan v. Town of Tellico Plains (Tenn. Ct. App. 2002). Another upheld a contractually agreed to limitations period of one (1) year. See, Certain Underwriters at Lloyd’s of London v. Transcarriers, Inc. (Tenn. Ct. App. 2002).
Step Two: Determining When the Statute Began to Run
In Most Cases, the Statute Begins to Run on the Date of the Breach
In most Tennessee breach of contract cases, the statute of limitations begins to run on the date of the breach. In most cases, it is not difficult to determine the date of the breach. If ABC Company agreed to deliver widgets on January 15, 2016 to XYZ Company, but failed to do so, the statute of limitations on XYZ Company’s claim began to run on January 15, 2016. If ABC Company agreed to pay the Bank a note owed by February 1, 2016, but failed to do so, the statute of limitations began to run on the Bank’s claim on February 1, 2016.
Different Rules for Demand Notes and Loans Due on Demand
If ABC Company’s note to the Bank provided that it was due on demand, as opposed to being due on a certain date, the ten year (10) statute of limitations would apply, and would have begun to run on the date the note was signed by ABC Company. T.C.A. §28-1-102; Slaughter v. Slaughter (Tenn. Ct. App. 1995) The statute of limitations did not begin to run on the date the Bank made a demand for payment.
If ABC Company borrowed money from XYZ Company, but there was no agreement about when ABC Company would have to pay the money back, the six year (6) statute of limitations applies (not the ten (10) year). See, Wilson v. Harris (Tenn. Ct. App. 2009) Furthermore, the statute of limitations began to run on the day ABC Company received the loan from XYZ Company. (Id.)
An Anticipatory Breach May Cause the Statute of Limitations to Begin Running Sooner than It Otherwise Would
Under Tennessee law, a breach of contract may occur before the agreed upon time for performance. Such a breach is called an anticipatory repudiation, or an anticipatory breach. Where there is an anticipatory breach, the statute of limitations begins to run on the date of the anticipatory breach. For example, if ABC Company agreed to pay a salesperson commissions as soon as it collected on his or her sales, but then tells the salesperson, months before a collection for which that salesperson would be due a commission, that it does not intend to pay the commission, the statute of limitations on the salesperson’s claim began to run on the date ABC Company said it had no intent to honor the contract.
In Cases Involving Continuing Contracts, There May Be More Than One Date on Which the Statute of Limitations Began to Run
Contracts can be divided into two types: (1) entire contracts; and (2) severable, or divisible contracts. Entire contracts may be breached only once, and so, there will be only one date on which the statute of limitations began to run for a contract which would be classified as an entire contract. Severable contracts, on the other hand, are contracts that can give rise to different breaches which occur at different times. The most typical example of a severable contract is an installment note which requires separate payments over a period of years. For severable contracts, the statute of limitations will begin to run for each separate breach at separate times. Determining whether a contract is entire or severable is a topic for another blog (maybe my next), but, when determining when the statute of limitations began to run, be sure and consider whether you might be dealing with a severable contract.
The above is general advice about statutes of limitations in Tennessee. Statutes of limitations are tricky and can be deadly, so, always consult with an experienced Tennessee breach of contract lawyer before making any decision about what statute of limitations applies to your case or when it began to run.