What is a Tolling Agreement?

The purpose of a tolling agreement is to prevent the loss of a right because of a statute of limitations. The terms of the agreement can be negotiated by the parties, usually through their attorneys. Ultimately, the parties entering the tolling agreement agree to waive the statute of limitations for either some predetermined period or up until some precedent condition.

Tolling agreements most obviously benefit a would-be plaintiff. A statute of limitations would ordinarily bar a claim, such as a personal injury tort claim, a breach of contract claim or collection of a debt. Because the plaintiff has to have enough facts to meet basic pleading requirements before the suit can continue, bringing the complaint together can sometimes be a race against the statute of limitations. By extending the period of time during which a claim can be filed, the plaintiff preserves the right to sue when the right might otherwise be lost.

Why a potential defendant might agree to a tolling agreement might not seem immediately apparent, but there can actually be significant benefit to the defendant. Offers to make a tolling agreement often occur within the context of settlement negotiations. If a defendant has determined that it would prefer to settle rather than defend against litigation, it might be willing to toll the statute of limitations period to allow negotiations to be completed. Otherwise, the plaintiff might be forced to file suit simply to preserve its right.

A mutually beneficial reason to enter a tolling agreement is to create certainty about when a suit can be filed. For a variety of reasons, there can be ambiguity about when a plaintiff’s right to sue terminates even with the existence of a statute of limitations. Drafting a tolling agreement gives both sides the opportunity to define the outer limits of the limitations period, with an extension given in exchange for a promise not to sue after a certain date or condition. This certainty makes it easier for both sides to assess their relative positions and conduct effective negotiations.

There are several reasons why even an apparently clear statute of limitations period may be ambiguous. A common reason is that though a statute of period is clear on how long it should last--for example, five years--there can be confusion as to exactly when it started. Many statutes of limitations do not begin until the plaintiff knows or should reasonably have known when the even giving rise to the cause of action occurred. For example, it may not be immediately clear after a surgery that the patient was a victim of malpractice. A plaintiff shouldn’t necessarily be barred from recovery because there was no way to know he was a victim until after the statute of limitations expired. But determining exactly when the patient should reasonably have known can be difficult.

Another reason for ambiguity is the doctrine of laches. This is a principle of fairness that can be used to prevent a plaintiff filing a suit even before the statute of limitations period has expired. A plaintiff who has slept on his rights and not filed suit when he could have and the result has prejudiced the defendant because evidence has been lost or destroyed, or for other reasons, can be barred from filing by the doctrine of laches. Defendants often raise the defense of laches, but it is rarely effective. Nevertheless, the potential for ambiguity is another reason to create a tolling agreement that more clearly defines the parties’ relative rights to sue and be free from suit.