What Is a Tolling Agreement and When Does It Help?

What a tolling agreement does

Every civil claim in Texas has a deadline. Most contract and debt claims must be filed within four years of the day they accrue under Texas Civil Practice and Remedies Code § 16.004; claims such as conversion and trespass have two years under § 16.003; claims with no specific period fall under the four-year residual rule in § 16.051. Miss the deadline and the defendant can plead limitations and end the case regardless of its merits.

A tolling agreement is the parties' contract that a stated stretch of time will not count toward that deadline. If the agreement is signed with 40 days left on a four-year period and runs for six months, the plaintiff still has 40 days when it ends. Nothing is filed, no court is involved, and the dispute stays private.

The agreement is possible because limitations is an affirmative defense that belongs to the defendant. A defendant can decline to raise it, and can agree in advance not to raise it for a defined period. Texas law restricts agreements that shorten limitations: under § 16.070, a contract that limits the time to sue to less than two years is void, with an exception for certain business-sale agreements worth $500,000 or more. There is no comparable statutory bar on agreeing to extend the time, which is what a tolling agreement does.

Why a plaintiff wants one

• Negotiations are working but the deadline is not. Filing suit changes the tone, adds cost on both sides and puts the dispute in a public record. A tolling agreement lets a productive negotiation finish. How those negotiations typically run is covered in how pre-suit negotiations work.
• The facts are not yet clear. A plaintiff who suspects fraud or a fiduciary breach but has not seen the records may not know whom to sue or for what. Tolling buys time to investigate instead of filing a thin petition against everyone.
• The claim is against someone you still work with. Suing a current supplier, customer or co-owner can end the relationship. Tolling preserves the claim without the lawsuit.

Why a defendant agrees

The question clients ask most is why anyone would give up a limitations defense. The usual answers:

• The alternative is being sued now. A plaintiff facing a deadline will file rather than lose the claim, and most defendants would rather negotiate than answer a petition.
• The defendant also wants time, to review its own files, to check insurance coverage or to line up the money for a settlement.
• The defendant believes the claim is weak and expects the plaintiff to drop it once the facts are reviewed, which costs less than a motion for summary judgment.
• A filed lawsuit may have to be disclosed to lenders, investors or a buyer in a pending transaction.

What the agreement should say

A tolling agreement is a contract, and courts read it like one. Vague agreements cause the very fight they were meant to avoid. The terms that matter:

• The parties. Every entity and individual the plaintiff may need to sue. An agreement with a company does not toll claims against its owners, affiliates or guarantors unless they sign.
• The claims covered. Broad language, such as all claims arising from a described transaction or relationship, is safer than a list of legal theories that may turn out incomplete.
• The tolling period. A start date, an end date or a method of termination (often written notice with a set number of days before the agreement ends), and whether the period can be extended by written amendment.
• How the time is counted. The agreement should say that the tolled period is excluded from the calculation of any limitations or repose period and from any laches or delay defense, so that the plaintiff has on the end date exactly the time it had on the start date.
• No revival. A statement that the agreement does not revive any claim already barred when it was signed. Defendants insist on it and courts would likely read it in anyway.
• No admission. Neither side admits liability, the existence of a claim or the validity of any defense other than limitations.
• Preserved defenses. The defendant keeps every other defense, including a limitations defense based on time that ran before the agreement.
• Governing law and signatures. Signed by someone with authority for each party.

What a tolling agreement cannot do

• Revive an expired claim. If the limitations period ran out before the agreement was signed, the agreement does not bring the claim back. Check the accrual date and count the days before relying on one.
• Bind people who did not sign. Claims against non-signatories keep running.
• Override every deadline. Some federal and state statutes contain periods of repose or jurisdictional filing deadlines that courts have treated differently from ordinary limitations. Where a claim arises under a specific statute, a litigator should check whether the deadline can be extended by agreement before the parties rely on it. Securities deadlines are a common example, covered in deadlines for securities claims in Texas and federal court.
• Satisfy a notice requirement. The 60-day notice before a Deceptive Trade Practices Act suit, construction lien notices and contractual notice-and-cure provisions are separate from limitations. Tolling the limitations period does not send the notice.

Example

Suppose two Dallas companies formed a joint venture to develop software, and one of them believes the other diverted the venture's customers to a separate business starting in early 2023. The potential claims include breach of contract and breach of fiduciary duty, each carrying a four-year period under § 16.004, with the earliest diversions now approaching that mark. The companies are negotiating a buyout and neither wants a lawsuit on the public docket during talks with a lender. They sign a tolling agreement covering both entities and their principals, all claims arising from the joint venture, suspending limitations from the signing date until 30 days after either side gives written notice of termination, with no revival of already-barred claims and no admissions. The buyout closes four months later with mutual releases, and no petition is ever filed. Had the lender talks collapsed, the claimant would have had the same number of days left to file as it had when the agreement was signed.

How it fits with a demand letter

A tolling agreement is often proposed in, or in response to, a demand letter, when the recipient asks for time to review and the sender cannot afford to give it. Offering to toll is a way for a recipient to show good faith without conceding anything, and a way for a sender to keep its position without filing. Which should come first, the letter or the lawsuit, is a separate decision covered in whether a demand letter or a lawsuit should come first.

When to involve a litigator

Before signing. The two mistakes that cost the most are signing after the deadline has already passed and leaving a party or a claim out of the agreement. Both are checked by counting the days from the accrual date and listing every potential defendant, which is routine work for a litigator and difficult to do well from the inside of a business. A litigator can also judge whether tolling makes sense at all, or whether the claim is better protected by filing now and negotiating afterward. Tina Wysk negotiates and drafts tolling agreements as part of her pre-litigation work for businesses in Dallas.