Every entrepreneur is very sensitive to deadlines for the performance by his trading partners of their obligations. The punctuality of business partners has a decisive impact on business operations, not only because of financial liquidity, but also because of the performance of the entrepreneur’s obligations.
Therefore, a person running any business is familiar with the term “limitation of claims”. He is probably also aware of when the liabilities that are typical of his business are time-barred. However, not everyone knows exactly what lies behind the “limitation of claims” and the terms associated with it, i.e. the interruption and suspension of the period of limitation of claims.
What does it mean that a claim expires, when and what are the consequences of suspending the limitation period of claims and what is the difference from the interruption of the period of limitation of claims? This is explained in the article below and the following two.
What does it mean that a financial claim related to business activity is time-barred?
With several exceptions, financial claims related to business are subject to a statute of limitations.
A financial claim is understood to be the right to demand that a particular person (debtor) behaves in a specific way. Therefore, this is a question of demanding the action or omission of something in the interests of the entrepreneur, such as payment, the preparation of a work, issuing the subject matter of a lease, remedying damage, stopping ash from the by-products of incineration covering real property, making a declaration of intent of specific wording or discontinuing competitive activities.
The limitation of claims boils down to the fact that, after the time specified by law, the debtor may refuse to perform his duty, by referring to the limitation period. In legal jargon, such a refusal to fulfil a performance is referred to as “raising the plea of limitation.”
This plea, in the case of claims asserted in court, must be raised (i.e. cited) by the defendant in the proceedings. This is very important, because the court does not take such circumstances into account ex officio (except in proceedings with a consumer), that is, if the party does not inform the court of this circumstance, the court will not take this fact into account when issuing the judgement.
If the defendant raises the plea of limitation and proves that the claims against it are time-barred, the entrepreneur’s action will be dismissed. Consequently, even in a situation where the debtor has not actually fulfilled his obligation, an entrepreneur seeking the performances due to it will be treated as the party losing the case. He will then be forced to refund the costs of the proceedings incurred by the debtor to the debtor (i.e. court costs and the costs of legal representation). Obviously, there will also be costs which the entrepreneur incurs on professional representation, the court fee and other necessary expenses.
If the defendant, i.e. the debtor, does not mention that the claims against it are time-barred, the court recognizes that it had the obligation to fulfil a performance and will award the claim in accordance with the entrepreneur’s demand.
The fact that a claim expires does not mean that the liability does not exist or ceases to exist. After the expiry of the limitation period, the debtor’s liability turns into a so-called “natural benefit”. This means that the liability exists, but it can only be satisfied voluntarily by the debtor. If the debtor does not want to satisfy it, it can avoid doing so by raising the plea of limitation. However, if the debtor fulfils the performance with respect to which the limitation period has expired, it cannot claim a refund of that benefit by invoking limitation. In other words, in such a situation, the debtor cannot effectively change his mind and demand a refund of a fulfilled natural benefit.
The debtor may waive the plea of limitation, i.e. declare that it will not benefit from it and pay, for example, expired invoices. The waiver may take any form; it may be oral, written, or even implied, namely arise from the context. Despite the freedom of the form, it is recommended that a declaration is obtained about the debtor’s waiver of the limitation period in writing. In the case of litigation, it would be much easier for the entrepreneur to prove this material circumstance with a document rather than testimony of witnesses or other evidence.
The waiver of the plea of limitation by the debtor means that his right to raise this allegation expires and consequently means that the debtor will not be able to avoid the performance.
A debtor can effectively only waive the plea of limitation after the expiry of the limitation period. A waiver made before the expiry of the limitation period is invalid, does not give rise to legal effects and similarly does not secure the entrepreneur’s claims for the future, i.e. after the expiry of the period of limitation of claims. A waiver of the plea of limitation causes the limitation period of the claim to start running again, as if the obligation had only just become due.
In the second part of this series of articles, I shall try to explain the issues of the beginning, suspension and interruption of the limitation period of claims related to running a business.
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