What Is a Tolling Agreement

Whether you are an entrepreneur who has some issues with business partners or just a person who has some dispute with a neighbor, former wife, etc., the knowledge about what is tooling agreement can be beneficial for you.

Key Takeaways

  • The tooling agreement suspends the statute of limitations for an agreed-upon time, and it gives both parties in dispute time to think about the next moves.
  • The tolling contracts in business usually sign the provider of raw material and the company that makes the final product which means that this is a different type of contract that one uses before a lawsuit.
  • A tooling agreement can be a win-win situation for both parties in dispute because it can save a ton of money by reducing the lawyers and court fees to a minimum possible.

What Is a Tolling Agreement

A tolling agreement is a contract signed by both sides of a potential lawsuit that suspends the statute of limitations for an agreed-upon time. 

A legislative body sets the statute of limitation and states the maximum time after an event in which legal proceedings can take place. In short, signing a tolling agreement can legally extend the time limit in which parties who signed it can take legal action about an incident. 

What Is a Tolling Agreement in Business

Usually, tolling contracts in business are signed by the manufacturer and company that provides raw materials. The ”toller” is a company who owns a raw material, so don’t be confused this is a different type of contract than the ones that are used in the law industry.

The tolling agreement in business is used to put under the framework the financial situation of the business partnership of the two involved parties. This type of contract defines the price of the raw materials that the manufacturer will pay, so the main purpose why both parties sign it is to reduce operating costs to the minimum.

The biggest example of the tool contracts that are used in a business is one in the oil industry. The drilling companies and refineries use these types of contracts to define prices and other aspects that are important for their business partnership.

So this doesn’t mean that these two parties have any disputes; this is common practice in business. 

Benefits of Signing a Tolling Agreement With Side in Dispute

Proposing a tolling agreement to side with who you have a dispute can be a chance to avoid litigation. You can propose the tolling agreement whether you’re taking legal action or being sued. 

Tolling agreements pressure both parties to settle outside of court.

In reality, neither party wants to go through the hassle of dealing with a court case. This is because court cases require a significant amount of time and money. 

This agreement gives both parties a chance to compromise and settle the dispute between themselves. The possibility of litigation will put pressure on both parties. 

It increases the plaintiff’s leverage.

If the plaintiff correctly identifies the legal potential of their case, they can use a tooling agreement to pressure the defendant.

In most cases, the defendant will do everything possible to avoid being sued; court cases are costly, and they can ruin the public image of the person or company. So, the plaintiff can use the tolling agreement to their advantage in many ways.

For example, it is possible to request in the contract that the defendant provide information and documents to the plaintiff. Acquiring knowledge like this in court through a ‘discovery phase’ can be expensive, frustrating, and time-consuming.

The tolling agreement can help the plaintiff uncover information that would otherwise be unavailable to them outside of court.

A tooling agreement prevents high litigation costs.

Litigation cost is something that weighs on both the defendant and plaintiff. This pressure and anxiety can push both parties to settle outside of court.

The defendants will more likely agree to a settlement outside of court because they might have to pay damages to the plaintiff and the lawyer’s fee. The defendant is more likely to agree to settle outside of court under a tolling agreement because they know the time leverage the plaintiff has. 

If parties in a dispute settle outside of court, they will save the money they would have spent on litigation, so this can be a win-win situation for everyone. 

These agreements give both parties time to think about the next step.

A tolling agreement suspends the statute of limitation to an agreed-upon time period. During this time, the plaintiff can adequately assess their case and determine its strengths and weakness. 

The defendants have the time to reconsider their offer to settle outside of court or build their case. Both parties have time to calmly consider their options and potentially come to a resolution outside the courts that satisfies them. 

Provides both parties with a head-start in a lawsuit

If negotiations prove to be futile, the plaintiff can file a lawsuit. They can use the tolling agreement as an effective and less expensive head start for the case. 

The plaintiff’s attorney benefits from the tolling agreement as they get more time to get familiar with the case, and additionally, the information extracted informally from the defendant via the tolling agreement can give the plaintiff a significant advantage in court. 

Even the defendant can benefit from the tolling agreement. They can get to know the plaintiff’s case better through discussions initiated by the tolling agreement and build their defense early on.

Why in Some Cases Signing a Tolling Agreement Isn’t a Wise Choice

While this agreement can benefit the defendant sometimes, those benefits are minuscule compared to the benefits and leverage gained by the plaintiff through the tolling agreement. 

The defendant should carefully consider their options before signing a tolling agreement. Here are a few reasons why.

Read the plaintiff’s claims in the agreement carefully.

The plaintiff can include lengthy explanations of what they consider to be facts that support their claims. The defendant should be wary of signing such an agreement without attempting to clarify and dispute them with the plaintiff. 

Beware of tolling agreements that say ‘terminable by written notice of either party.’ 

A tolling agreement should always have a clearly stated time frame: the shorter this time frame, the better for the defendant. The parties can always agree to extend the time frame if necessary. 

Suppose we are considering a tolling agreement that can be terminated by written notice of either party. In that case, the defendant’s lawyers are often hesitant to terminate a tolling agreement because they fear it might trigger a lawsuit. 

For this reason, if the defendant’s attorney feels like the case is going to be dropped, they remain silent. 

Tolling agreements rarely prevent litigation.

A vast majority of tolling agreements end in litigation. Rarely does it actually result in disputes being settled outside of court! 

So agreeing to toll agreements does more harm than good to defendants, as witnesses become less credible in front of the courts, documentation can be destroyed in the time being, and the defendant’s credibility can go stale.

The defendant must consider these points before agreeing to suspend the statute of limitation and give the plaintiff remarkable advantages. The defendants should only agree to sign this contract if they believe there is a significant chance of convincing the plaintiff to drop the case through negotiation or if a solid case can be built up against the plaintiff. 


A tolling agreement can be very beneficial or detrimental to a party depending on if they’re the plaintiff or the defendants. Both parties can technically benefit from a tolling agreement. 

The plaintiff should strive to extend the time frame of the tolling agreement to their benefit, but the defendants should do the exact opposite and try to reduce the time frame as much as possible. How a tolling agreement affects a party is a case-by-case problem. 


Written by:

Stuart MacPherson

Hi, I'm Stuart. I've been running my own small business since 2019 after leaving a successful career in finance. I created FranchiseTheory to share my enthusiasm for franchising and the franchise business model.

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