What is tolling agreement?
What is the purpose of a tolling agreement?
What are the important elements that you must know!
In this article, we will break down the legal definition of Tolling Agreement, so you know all there is to know about it!
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What is a tolling agreement
A tolling agreement (tolling contract or tolling arrangement) is a contractual agreement between parties in a dispute where they agree to suspend the tolling of the statute of limitations for a defined period of time.
In essence, with this written contract, the parties agree to waive the right to claim that a cause of action has been time-barred due to the application of the statute of limitations.
In other words, business entities, individuals or anyone in a pre-litigation stage can choose to enter into a tolling agreement to benefit from additional time in evaluating their legal case or negotiating a settlement before having to file suit formally.
During the tolling period agreed by the parties in their contract, the parties waive the right to move to dismiss the case, or file an eventual motion to dismiss, based on the expiration of the statute of limitations.
It sounds odd for a potential defendant to consent to the tolling of the statute of limitation.
However, in some cases, it may be an interesting strategy for the defendant giving it additional time to evaluate its legal options knowing that the plaintiff is coming with a possible lawsuit.
For businesses, signing a tolling contract falls more within the realm of business decisions than a legal decision.
Tolling agreement definition
How do you define tolling agreement?
A tolling agreement is a legally binding contract where parties in dispute agree to suspend the application or “tolling” of the statute of limitations for a mutually agreed period of time.
This type of agreement can be beneficial to the plaintiff faced with the pressure of having to file a lawsuit to avoid losing legal rights.
It is also beneficial for the defendant who agrees to waive the right to request the dismissal of the plaintiff’s eventual action in exchange for some time to potentially resolve the dispute with the plaintiff and avoid the costs of litigation.
Why toll statute of limitations
In some cases, a business or person that has been wronged will take immediate measures to file a lawsuit and seed damages or legal remedy.
However, in other cases, there might be more possible options to consider than filing a lawsuit.
What happens if a party is considering alternative options for resolving a dispute and the statute of limitations is expiring?
To avoid the pressure of filing a lawsuit for the mere preservation of a claim, the parties can choose to enter into a tolling agreement to potentially resolve their dispute and even avoid litigation altogether.
The objective of tolling the statute of limitations is to help parties avoid a costly civil lawsuit when they can mutually agree to give themselves additional time to evaluate their respective claims or reach a settlement.
Tolling law is beneficial for litigants and helps the courts remain more efficient in dealing with fewer cases filed strictly for the preservation of legal rights or recourse.
When can a statute of limitations be tolled
A question that is asked often is if filing a lawsuit tolls the statute of limitations?
The answer is yes.
Typically, the statute of limitations will be tolled or suspended when a party files a lawsuit.
The filing of a statement of claim, legal petition or lawsuit legally stops the statute of limitations clock.
Even if the case takes three, four, five or ten years to conclude, the rights of the parties are crystallized as of the moment the lawsuit was filed.
There is another way that parties can suspend the statute of limitation clock.
That’s by tolling with a tolling agreement.
The legal implication of tolling contracts is to allow parties “contractually” to suspend the statute of limitations clock, allowing them to pursue out-of-court negotiations or reach a settlement.
What are the advantages of having the statute of limitations tolled?
There are several reasons why you should consider tolling agreements before filing a lawsuit:
- It helps the parties in dispute actively look for ways of settling the matter
- It helps the plaintiff use the leverage of a possible lawsuit to reach an out-of-court settlement
- If the parties do agree to settle their dispute, they can avoid litigation entirely
- It gives the litigants more time to think of their options
Although it may not sound like a logical thing for a future defendant to agree to suspend the tolling of the statute of limitations, it can actually be an effective strategy.
If the parties in a pre-litigation dispute have good faith reasons to believe they can settle their dispute or find alternative solutions.
Elements of a tolling agreement
Tolling agreements are drafted specifically for the unique set of circumstances between the contracting parties.
It is crucial to ensure that the contract is drafted in such a way that it is clear as to:
- Scope of claims subject to the tolling contract
- The time period for which the statute of limitation is paused
- There should be no admission of liability
- The effective date must be clear
- The time period where the parties should meeting and confer prior to the expiration of the tolling arrangement
Tolling contract examples
Let’s look at a few examples of how tolling agreements may be used as a legal tool to resolve possible disputes.
Plaintiff and defendant tolling agreement
One scenario where tolling arrangements may be beneficial is when a party intends to file a lawsuit against another to resolve a potential dispute under pressure to avoid the legal claim’s expiration.
In this case, it’s a “future” plaintiff against a “future” defendant.
Suspending the statute of limitations can help the parties in a pre-litigation mode find common grounds to settle their differences outside of the courtroom.
Co-defendant tolling agreement
Another scenario where a tolling agreement may be envisaged is between co-defendants in a lawsuit.
If two or more entities or individuals are sued in court, they may want to exercise legal recourses against one another.
However, to avoid exposing their adverse position to the plaintiff who may take advantage of the inner-fight between the defendants, the defendants can enter into an agreement for tolling the timeline to file claims or counterclaims against one another.
This will benefit both defendants in the context of their lawsuit against the plaintiff and they can preserve their legal rights and remedies until it is clear that the plaintiff has a strong case against them.
Let’s look at a sample drafting of a tolling agreement to better understand how these types of contracts are presented.
The below is an extract of the Tolling Agreement publicly available and entered into between Kathryn J. Wilson (an employee) and The PBJS Corporation (an employer) on March 16, 2006:
With respect to any and all claims or causes of action, known or unknown, relating to, arising out of, or in connection with, the Affiliation Period and/or the Agreements, including but not limited to claims for alleged breach of fiduciary duty, fraud, negligence, gross negligence, negligent misrepresentation, breach of contract, or any other claims or causes of action whatsoever (collectively, the “Tolled Claims”), the Parties hereby stipulate that any applicable statute of limitations or other Time Defenses applicable to the Tolled Claims shall be deemed tolled from the effective date of this Agreement until the earlier of: (a) the expiration of four (4) calendar years from the date of the execution of this Agreement; or (b) the termination of this Agreement by either PBSJ or Wilson in accordance with the terms and conditions of this Agreement. The period of time during which any applicable statute of limitations or other Time Defenses applicable to the Tolled Claims shall be deemed tolled is hereinafter referred to as the “Tolling Period.” The Tolling Period shall run from the date of execution of this Agreement until termination of this Agreement as provided herein. For purposes of clarity, the tolling of the statute of limitations and other Time Defenses during the Tolling Period shall survive any termination hereof, such that any Tolled Claim which would have been barred as a result of the expiration of the statute of limitations or other Time Defense with respect to such claim at any time during the Tolling Period may be brought by PBSJ at any time prior to the termination of the Tolling Period and Wilson may not assert the expiration of the statute of limitation during such period or any other Time Defense as a defense to any such Tolled Claim brought by PBSJ.
What does it mean to toll statute of limitations?
What tolls the statute of limitations?
Let’s look at a summary of our findings.
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