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Quick Fact
In business terms, a tolling agreement is signed between two parties/companies, wherein one company supplies a certain amount of raw material to be used in a related industrial process in the other company. The agreement is designed to mutually benefit both the parties.
When a legal term is coined and declared, it applies to many different scenarios. A certain amount of time is set after any event/incident/agreement takes place, beyond which legal proceedings are liable to take place.

Legislative bodies have passed certain laws that restrain this maximum period. These laws are called statute of limitations. In effect, it is like a deadline. Before it expires, a lawsuit can be claimed or any other sort of claim can be made as well. If it expires, the claim will not be valid. A tolling agreement runs along the same lines. The paragraphs below will explain what a tolling agreement is as well as elaborate on the related legal concepts.

The Concept
  • The definition of tolling agreement states that it waives off the litigation dismissal claim.
  • It is understood from the introduction that a statute of limitations is a deadline for filing a claim. Legally, the claim is canceled after the statute period.
  • Now, assume that there are two parties who have signed a tolling agreement.
  • This agreement means that the litigation which should ideally be canceled after the expiration period is not canceled, and the period is suspended for a while until the parties are ready to file a claim.
  • The agreement is basically formulated to increase the time frame to give more leeway to the parties involved so that they can decide on the viability of the claims, or rethink about the damage claim, etc.
The Purpose
  • The basic purpose of a tolling agreement is time extension for claim filing, and this arises to prevent losing the right to claim due to the statute of limitations.
  • Like every agreement, it has terms and conditions, which need to be very carefully evaluated and drafted to avoid potential problems.
  • The agreement conditions must be drawn and reviewed by attorneys from both the parties.
  • The final point to be clearly stated is waiving the statute of limitations for a set period.
The Concept of Ambiguity
  • One of the basic reasons for signing a tolling agreement is that it helps eliminate ambiguity.
  • The agreement creates a certainty regarding the filing of the suit.
  • A statute of limitations is generally a predetermined period, but if the period is long, say 2-4 years, one can be confused regarding the exact date of commencement.
  • Some beginning dates can be confusing, because the plaintiff may or may not know the exact time of event occurrence.
  • Also, that he was a victim may be known only after the period expires. A tolling agreement helps eliminate these uncertainties.
  • Another legal doctrine you need to know is laches. By law, laches are applied only for equitable relief, not for damage claim.
  • The term is used when there is a time delay (with no specific reason for the same) from the plaintiff's side to bring up the claim. It is used to prevent him from filing before the expiry period.
  • To elaborate, if a plaintiff has not filed when he could have, and the defendant has been prejudiced (for whatever reasons), the plaintiff loses the right to claim, according to the theory of laches.
  • This is another reason for ambiguity, which can be eliminated by this agreement.
Benefits
  • A tolling agreement helps eliminate ambiguity.
  • Also, if the defendant has decided that he would agree for a settlement rather than putting up a defense, the tolling period gives additional time beyond the expired period so that the defendant may take care of all the negotiations.
  • The agreement is certainly beneficial for the plaintiff. The statute of limitations can ideally cancel every claim after it expires.
  • However, by signing a tolling agreement, he can extend the period and preserve the right to sue.
  • He can buy additional time to collect evidence and facts to support his claim, and he can then file the suit.
Example

A simple example of tolling agreement is given below.
  • Assume that a particular person is working for a company under contract. According to the stated terms and conditions, a breach of contract from his side will give the company a legal right to sue him.
  • Thus, let's say the employee breaks the contract (for whatever reason), and the company has filed a case against him.
  • While the case is going on, the plaintiff may have a stipulated period, say 3 years, to file a claim to recover the settlement from the employee.
  • If the parties do not sign a tolling agreement and the plaintiff forgets to file a claim before the statute of limitations expires, his case will be instantly dismissed and the outcome will favor the defendant.
  • In case a tolling agreement is signed, the plaintiff can extend the date even after the statute of limitations expires.
  • He can continue with the claim even if the negotiations are broken.
  • Thus, he will get his due settlement and win the case because the tolling agreement was signed.
You can word the tolling agreement with caution, with proper legal advice, such that it does not cancel the liability insurance. Also, remember that the agreement is not for those claims for which the statute of limitations has already been passed. This agreement, thus, helps both parties to reassess their positions and conduct proper negotiations.