Supply Chain Survival Series: Overview of the UCC’s Statute of Limitations for Breach of Contract Claims (Article #15)
Previously, in Article #14 (Remedies for Breach of Contract) of our Supply Chain Survival Series, we discussed the common legal remedies available to a non-breaching party in a contract dispute. However, one important limitation on a party’s ability to obtain those remedies is the “statute of limitations” under Article 2 of the UCC, which can limit a party’s ability to bring a breach of contract claim due to the passage of time. A central purpose of statute of limitations is to protect defendants from stale or fraudulent claims.1 Because the statute of limitations provides a complete defense to a breaching-party, even if the alleged breach actually occurred, it is important for contracting parties to understand how the statute of limitations works.
Statute of Limitations Under Article 2 of the UCC
If a party breaches a contract governed by Article 2 of the UCC, the “statute of limitations” provided in the UCC is the time period by which the non-breaching party must file the lawsuit after such breach occurred in order to maintain its rights to take legal action against the breaching party. Section 2-725 (1) – (2) of the UCC states that:
“(1) an action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.
(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.”
Statute of Limitations Varies Based on State Law
Each state has adopted its own version of Article 2 of the UCC, which may contain a shorter or longer statute of limitations period for breach of contract claims arising out of a contract for the sale of goods. For example, the statute of limitations period for such claims is six years under Wisconsin law2, and four years under Delaware and Illinois law3 (most states generally have a statute of limitations period that between four to six years for contracts for the sale of goods and between four to 10 years for all other contracts). Additionally, some states, but not all, generally permit parties the flexibility to contract for a shorter period statute of limitations as described under the UCC Section 2-725 (1) noted above. For example, under Delaware and Illinois law, parties may generally contract for a shorter statute of limitations period ranging between one to four years.4 Conversely, under Wisconsin law, only parties that are “merchants” may contract for a shorter statute of limitations period, ranging between one to six years.5 Notably, except as stated below, the statute of limitations for contracts for the sale of goods may not be extended for a longer period of time than set forth in the applicable statutes in Delaware, Illinois and Wisconsin.6
Other Considerations When Evaluating Statute of Limitations
It is important to note that the statute of limitations for contracts involving a mix of goods and services may differ from the statute of limitations described above as applying to contracts that are solely for the sale of goods. This is important because the applicable statute of limitations period for breach of contract claims arising out of a contract for services, which are not governed by Section 2-725 of the UCC, may be shorter or longer than allowed under Article 2 of the UCC and also varies across state law7. For example, the statute of limitations period for breach of contract claims arising out of a contract for services is six years from the date of such breach under Wisconsin law.8 However, the statute of limitations period for breach of contract claims arising out of a contract for services is three years from the date of such breach under Delaware law9 and ten years from the date of such breach under Illinois law10, but, unlike Illinois and Wisconsin law, Delaware law expressly provides parties with some flexibility to negotiate for a shorter or longer period of limitations (of up to twenty years) for contracts involving at least $100,000 (including contracts involving the sale of goods).11
For the reasons stated above, it is important for parties to consider the statute of limitations when a breach of contract has occurred to evaluate their available rights and remedies. At a minimum, the non-breaching party should ensure that it has adequate time to properly file its lawsuit and the breaching party should ensure that it properly raises the statute of limitations as a defense if it is available.
If you have any questions on this article, please contact your Quarles attorney:
- Patrick Taylor: (414) 277-5523 / patrick.taylor@quarles.com
- Brandon Krajewski: (414) 277-5783 / brandon.krajewski@quarles.com
- Michael Chargo: (608) 283-2450 / michael.chargo@quarles.com
- Kierre Elvington: (414) 277-5184 / kierre.elvington@quarles.com
Quarles attorneys Hannah Schwartz, Lauren Zenk and Elizabeth Lacey also contribute to the Supply Chain Survival Series.
END NOTES
1 See CLL Associates Ltd. Partnership v. Arrowhead Pacific Corp., 174 Wis. 2d 604 (1993).
2 Wis. Stat. § 402.725(1).
3 6 Del. C. § 2-725 (1); 810 Ill. Comp. Stat. Ann. 5/2-725(1).
4 6 Del. C. § 2-725 (1); 810 Ill. Comp. Stat. Ann. 5/2-725(1).
5 The purpose of limiting the right to reduce the period of limitations to less than 6 years by written agreement between merchants only was to protect consumers or other unsophisticated parties unknowingly reducing their rights to sue for breach of contract. See County of Milwaukee v. Northrop Data Systems, Inc. 602 F. 2d 767, 770; Wis. Stat. § 402.725(1).
6 Del. C. § 2-725 (1); 810 Ill. Comp. Stat. Ann. 5/2-725(1); Wis. Stat. § 402.725(1).
7 Generally, courts will apply a predominant purpose test to determine whether the contract is at its core a contract for services or contract for goods, and subsequently whether Article 2 of the UCC should apply to the contract at issue. § 2-102:3 Mixed transactions in goods and services, 1 Hawkland UCC Series § 2-102:3.
8 Wis. Stat. § 893.43.
9 10 Del. C. § 8106(a).
10 735 Ill. Comp. Stat. Ann. 5/13-206.
11 6 Del. C. § 2-725 (1); 10 Del. C. § 8106(c).