Business owners usually come in asking whether they have a good claim. The first question a litigator actually has to answer is whether the claim is still alive. A strong case filed too late is worth nothing, and Texas does not grade on effort.
Texas limitations periods are set by statute, mostly in Chapter 16 of the Civil Practice and Remedies Code. The periods themselves are short enough to list on one page. The complications are in which statute covers which claim, when the clock starts, and whether your own contract already shortened it.
The four year claims, and what the statute actually names
Section 16.004(a) of the Civil Practice and Remedies Code gives four years from the day the cause of action accrues for a short list of actions:
- Specific performance of a contract to convey real property
- Penalty or damages under the penal clause of a bond to convey real property
- Debt
- Fraud
- Breach of fiduciary duty
Subsection (b) covers suits on the bond of an executor, administrator, or guardian, with the four years running from that person’s death, resignation, removal, or discharge. Subsection (c) covers three more: a suit against a partner for a settlement of partnership accounts, an action on an open or stated account, and an action on a mutual and current account for merchandise traded between merchants or their agents or factors. For that group, the cause of action accrues when the parties’ dealings in the matter cease.
That last rule matters more than it sounds. If you have been running an open account with a supplier for six years, the clock on the account does not start on the first unpaid invoice. It starts when the dealings stop.
Breach of contract is not in the four year statute
This is the detail most summaries get wrong, and it is worth getting right because the answer happens to be the same number.
Breach of contract does not appear in Section 16.004. It runs under Section 16.051, the residual limitations period, which covers every action for which there is no express limitations period, except an action for the recovery of real property, and sets a four year deadline from the day the cause of action accrues.
Why care, if the answer is four years either way? Because the residual statute is a catch-all, and the first question in a limitations fight is which statute governs. A claim pleaded as fraud is on a different statutory footing than the same facts pleaded as breach of contract, even though both get four years. And because a claim that looks contractual may be recharacterized as something with a shorter period. Conversion, for example, gets two years, not four, and a dispute over withheld property can be pleaded either way.
The two year claims
Section 16.003(a) requires suit not later than two years after the day the cause of action accrues for:
- Trespass for injury to the estate or to the property of another
- Conversion of personal property
- Taking or detaining the personal property of another
- Personal injury
- Forcible entry and detainer
- Forcible detainer
Subsection (b) covers an action for injury resulting in death, also two years, accruing on the death of the injured person. Subsection (a) applies except as provided by Section 16.010 on trade secrets, Section 16.0031 on asbestos and silica related injuries, and Section 16.0045 on claims arising from certain offenses.
For a business, the two that bite are conversion and taking or detaining personal property. A departing partner who keeps equipment, a vendor who will not return inventory, a former officer who walks off with company property: those are two year claims, and two years goes quickly while people are still trying to work it out privately.
Trade secrets run on their own three year clock
Section 16.010(a) sets three years for misappropriation of trade secrets, and it measures from a different starting point than most of Chapter 16. The three years run from when the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.
Subsection (b) adds a rule that surprises people. A continuing misappropriation is a single cause of action, and the three year period runs without regard to whether the misappropriation is a single act or a continuing one. In plain terms, a competitor who has been using your customer list for five years does not hand you a fresh claim every month. The clock started when you discovered the taking, or should have.
That is why the phrase “should have been discovered” is doing the heavy lifting. If a former employee’s new company started calling your accounts and your own records show you noticed, the question of what you should have known and when becomes the whole case.
When the clock starts is usually the real fight
Every one of these statutes runs from accrual. The general Texas rule is that a cause of action accrues when a wrongful act causes a legal injury, whether or not the injured party knows about it. That rule produces hard outcomes, and Texas courts have carved out two narrow exceptions.
The discovery rule defers accrual until the injury is discovered or should have been discovered with reasonable diligence. Texas courts apply it sparingly and generally only where the injury is both inherently undiscoverable and objectively verifiable. Whether it applies to your facts is a contested question in most cases, not a given, and it is the plaintiff’s burden.
Fraudulent concealment can estop a defendant from relying on limitations where the defendant knew of the wrong and concealed it. It is also narrow and fact intensive.
Neither doctrine is a safety net you should plan around. They are arguments you make when you are already late, and they are arguments you can lose. If you think something happened to your company three years ago and you are deciding whether to look into it, the answer to “will the discovery rule save us” should never be the reason you wait.
Your contract may have shortened the deadline already
Texas lets parties agree to a shorter limitations period, inside a floor. Section 16.070(a) makes void in this state any stipulation, contract, or agreement that sets a limitations period shorter than two years. So a clause giving you ninety days to sue is unenforceable. A clause giving you two years is not.
Subsection (b) carves out an exception: the two year floor does not apply to a contract relating to the sale or purchase of a business entity where the parties’ consideration has an aggregate value of not less than $500,000. In a transaction of that size, the parties can agree to a period shorter than two years, and in practice survival clauses in purchase agreements often do exactly that.
This is the single most common way a business owner loses a claim without ever hearing the word limitations. The deadline was not in the statute. It was on page forty of the agreement they signed three years ago. Before you assume you have four years, read the contract the dispute arises from.
Being sued does not revive your own claim, but there is a thirty day window
If someone sues you and you have a claim against them that is already time barred, Section 16.069 may still let you assert it. A counterclaim or cross claim that arises out of the same transaction or occurrence as the plaintiff’s action may be filed even though as a separate action it would be barred by limitation on the date your answer is required.
The catch is subsection (b). The filing has to be made not later than the 30th day after the date your answer is required. That is a short window, it opens the moment you are served, and it closes while most defendants are still interviewing lawyers. If you are sued and you believe you have claims of your own, that calendar date is the first one to set.
What to do with a deadline you are not sure about
A few practical habits prevent most limitations problems.
When something goes wrong, write down the date it happened and the date you learned about it. Those two dates drive everything, and memories about them get worse, not better.
Pull the contract before you pull together the story. The governing agreement may set a shorter period, specify a forum, or require notice and a cure period before suit, and each of those changes what you have to do and when.
Do not let settlement talks run the clock out. Negotiating does not extend limitations. If a deadline is approaching and the other side is still talking, the options are a written tolling agreement or a filed petition, not optimism.
And when you are inside a year of any plausible deadline, stop estimating. Which statute applies to a given set of facts is a legal question with real disagreement in the case law, and the cost of getting it wrong is the entire claim.
If you are weighing whether a business claim is still viable, or you have been served and need to know what you have to file in the next thirty days, our litigation attorneys in Frisco can help you pin down the deadline before it decides the case for you.
Related reading
- How Business Litigation Works in Texas: A Plain-Language Overview
- What Is a Breach of Contract Under Texas Law?
- What Counts as a Trade Secret Under Texas Law?
About the author: David R. Wortham Jr. is a partner at Hanshaw Kennedy Hafen in Frisco, Texas. He is a business litigation attorney who has advised and represented businesses and individuals in complex matters for more than a decade.