Guide By – Los Angeles Breach of Contract Attorney
If the flow of your business is suddenly interrupted when someone breaches a contract or accuses you of violating the terms of an agreement, a Los Angeles breach of contract lawyer at Cherepinskiy Law Firm stands ready to evaluate your issue and take aggressive action to protect your rights. Businesses do not operate in a vacuum. Every day, contractual relationships are formed with business partners and associates, clients, customers, vendors, service providers, product manufacturers and distributors, and a myriad of other individuals and companies. The operation of most, if not all businesses, depends heavily on a key foundational building block – a contract. When this building block is affected by a breach of contract issue, the entire business structure suffers, leading to serious financial ramifications. Please call or fill out an electronic contact form today to request a free consultation from a Los Angeles contract litigation attorney.
Formation and Elements of a Contract
In California, the formal elements of a contract have been established for a very long time. In 1872, the State Legislature enacted California Civil Code § 1550. Section 1550 states that the essential elements of a contract are as follows:
1. Parties who are legally capable of entering into a contract (legal capacity);
2. The parties consent to enter into a contract (there is an offer and an acceptance of that offer);
3. The contract has a “lawful object” (a legal purpose); and
4. There is a sufficient consideration.
California Civil Code § 1550; see also California Civil Jury Instructions (CACI) 302, 307, and 309.
Legal Capacity to Enter into a Contract
In order to form a valid and enforceable contract, parties have to have the “legal capacity” to enter into a contractual agreement. The concept of “capacity” refers to the issue of whether or not a person actually has the ability to understand and accept the terms of an agreement, and whether or not the person is legally allowed to enter into a contract. In general, there are three categories of parties that will be considered to lack legal capacity for contract formation purposes: (1) minors; (2) persons of “unsound mind”; and (3) corporations that are not in “good standing”. The issues involving legal capacity can become difficult to handle without the assistance of a Los Angeles breach of contract attorney.
It is well-settled in California law that minors are not “capable of contracting”. California Civil Code § 1556. A minor is anyone under the age of 18. A minor does not have the legal capacity to agree to be bound by a contract. The rationale behind this rule is that minors are not able to comprehend issues related to contractual terms, as well as their rights and obligations pursuant to those terms. Contracts with minors are considered to be “voidable” – i.e. at any time prior to a minor’s eighteenth birthday, the minor has the legal right to void and disaffirm the contract and refuse to be bound by its terms. Even if a minor’s parent or guardian approves it, the contract is still not enforceable against the minor. In terms of the ability to enforce contracts with minors, this is a “one-way rule”. In other words, a minor still has a perfect right to proceed against the other party and enforce the terms of the contract.
There are very few exceptions to this rule, and most of them are contained in the California Family Code § 6700, et seq. For example, in the following circumstances, contracts with minors are not voidable just because one party was a minor at the time when the contract was formed:
- If the contract with a minor is approved by the court. California Family Code § 6751; and
- If the purpose of the contract is to pay for those things, which are necessary to provide support for the minor or for the family of the minor. California Family Code § 6712.
Persons of “Unsound Mind”
Similarly to minors, pursuant to California Civil Code § 1556, individuals of “unsound mind” are not able to enter into a binding contract. The reason behind this rule is that mentally or intellectually impaired people are not able to understand contractual terms, rights and obligations.
California Civil Code § 39(b) creates a rebuttable presumption [an assumption that something is true unless proven otherwise] that an individual is of “unsound mind”, if that individual is unable to:
- Manage financial resources;
- Resist fraud; or
- Resist undue influence.
However, a person’s involvement in some “isolated incidents” of lacking foresight or negligent conduct is not sufficient to create the “unsound mind” presumption. Pursuant to California Civil Code § 38, someone who is “entirely without understanding” does not have any power to enter into a contractual agreement. Nevertheless, pursuant to section 39, the person “without understanding” is still responsible for paying for the “reasonable value” of those things, which have been provided for the support of this person or the family of this person.
Corporations That are Not in “Good Standing”
A corporation’s status of being suspended results in its loss of the ability to enter into binding and enforceable contracts. Specifically, if a corporation fails to pay taxes owed to the California Franchise Tax Board, its “corporate powers, rights and privileges” may get suspended [if it’s a California corporation] or even completely forfeited [if it’s a foreign corporation]. California Revenue and Taxation Code § 23301. Any contract that a corporation enters into during the period when its rights, powers and privileges are suspended or forfeited – is “voidable” at the request of the other party to the contract. California Revenue and Taxation Code § 23304.1(a).
Offer and Acceptance: Agreement to the Contract Terms
The parties to a contract must agree to the terms of that contract. Specifically, there must be an “offer” and an “acceptance” of that offer.
The elements of an appropriate “offer” are as follows:
1. The party making an offer (“offeror”) has to inform another party (“offeree”) of the offeror’s willingness to enter into a contract under certain terms.
2. The proposed contract must contain specific, definite and clear terms. It is a well-established requirement that a “mutual consent” is essential for the creation of an enforceable contract. In other words, the parties to a contract must:
- agree on the same thing and
- the “thing” agreed upon must mean the same to all parties
For example, a valid contract for the sale of a vehicle would clearly and unambiguously define the vehicle as a “1967 Ford Mustang GT 390 Fastback” instead of “a classic car”.
3. Based on the communicated information, the offeree could have made a reasonable conclusion that, if the offeree accepted the offer with the proposed terms, it would result in a contract.
See California Civil Jury Instructions (CACI) 307.
In California, in order for a contract to be enforceable, a party’s “acceptance” of an offer must meet the following requirements:
1. The offeree [the person who received an offer] must agree to comply with all the terms of the proposed offer. In order for an acceptance to be valid, absolutely all proposed terms have to be accepted:
- exactly; and
If the offeree accepted only certain selected terms contained in the offer, or proposed new or additional terms, it does not constitute a valid “acceptance”. Such a “qualified acceptance” terminates the original offer and creates a “counteroffer”.
2. The offeree’s agreement to accept all proposed terms of the contract has to be communicated to the offeror.
See California Civil Jury Instructions (CACI) 309.
By law, at any time before an offer is accepted, the offeror may revoke the offer. In other words, the party that made the offer has the right to say, “I have changed my mind, and the offer is off the table”. However, an offer may be revoked only prior to acceptance. If the terms of the offer have been accepted [assuming all other elements of a valid contract are present], it creates an enforceable contract and the offeror becomes bound to the contract’s terms. Under such circumstances, it is too late to revoke the offer.
If the party that received an offer [offeree] communicates that the offer is rejected, this act automatically terminates the offer. In other words, a rejected offer cannot be accepted at a later time.
Contract Must Have a Legal Purpose
Another important element of any contract is that it must have a “lawful object”, which is another way of saying that it needs to have a legal purpose. It means that, in order for a contract to be enforceable, the subject matter of the agreement must be legal. If parties enter into an agreement to perform an illegal activity (e.g. fraudulent activity), such a contract will not be enforceable in court.
If you ask a Los Angeles breach of contract lawyer about contract components, you will hear that one of the most crucial elements of a contract is mutual “consideration”. Without consideration, a contract is not enforceable. The concept of consideration means that the parties to a contract must bargain for and mutually agree to “suffer a prejudice” [i.e. give up something] or “confer a benefit” to each other. In other words, each party to a contract must give up something that has value and gain something else that has value in exchange for it.
- For example, when a coin collector purchases an antique coin, the following exchange takes place: The collector pays money and, in exchange for it, obtains the coin. The seller gives up the coin and, in exchange for it, gets money. In this example, the contract is supported with a valid consideration.
A valid consideration can be provided in multiple ways such as:
- Money (cash, credit card payments, bank transfers, etc.)
- Personal property (collectibles, automobiles, motorcycles, boats, furniture, etc.)
- Real property (residential and commercial real estate)
- Services (e.g. car repair or gardening service)
- A promise to forego something that a party has a legal right to do:
- E.g. Apartment owners agree not to use their parking spot in exchange for a certain monthly payment from another resident of the same building
- E.g. A car accident victim agrees to give up the right to sue in exchange for a compensation
Contracting parties enjoy ample freedom in terms of their ability to negotiate. Although a mutual consideration does not have to involve a completely equal or identical exchange of value, it does have to be of “reasonable value”. A person’s willingness to sell an asset for less than its market value will be respected and enforced by the courts. However, courts frown upon completely “one-sided” deals. Consideration of such little value that it essentially has no value at all (i.e. “nominal consideration”) is not likely to be sufficient to create a binding contract. For example:
- An agreement to pay ten dollars for a one-of-a-kind Ferrari that is worth millions of dollars will be considered unenforceable due to its nominal consideration.
Besides nominal consideration, a lack of consideration may exist in a variety of other circumstances:
- gratuitous and voluntary transfers (gifts)
- existing legal obligations – i.e. when a party already has a legal obligation to perform a service or to do something.
For example, a paramedic cannot claim that a person must compensate the paramedic for splinting that person’s leg at the site of a car accident. As a part of the paramedic’s job, the paramedic is already obligated to provide emergency medical services.
- past performance and moral obligation
For instance, a person washes her neighbor’s car without agreeing in advance that this service would be compensated. The owner of the car says, “Wow. Thank you. I’ll pay you $20.” The car owner may feel a moral obligation to reward the service, but the car owner is not contractually obligated to do so, because the act of car washing has already occurred before any negotiation took place. In other words, a party may not unilaterally decide to perform a service and then demand a payment for it.
- illusory promises – agreements where one party seems to make a promise supported by consideration but, in reality, the promising party is not obligated to do anything.
For example, a person says, “I will pay you $100 for this sweater, if I want to”.
Types of Contracts
All contracts fall into the following two major categories: Express Contracts and Implied Contracts. California Civil Code § 1619.
Express contracts are demonstrated by the parties’ direct words, regardless of whether these are spoken words or written words. Therefore, both oral contracts and written contracts fall into the category of express contracts. California Civil Code § 1620.
Implied contracts do not involve any oral and written agreements and are, instead, demonstrated by the parties’ conduct and actions evaluated in the context of the surrounding circumstances. California Civil Code § 1621.
All these agreements are discussed below in detail.
Under California law, oral contracts can be legally valid and binding. In order to be enforceable, oral contracts must comply with all of the above-discussed requirements, such as legal capacity, offer and acceptance, a legal purpose, and consideration. So, in theory, parties can enter into oral contracts for the purpose of engaging in various commercial and business transactions. In practice, verbal agreements are fraught with risks and potential problems. If everything goes well and the parties have no disagreements or disputes, the terms of the agreement never become an “issue”. However, in case of a dispute between the parties, without a written agreement, it becomes extremely difficult to prove the terms of an oral contract or that the oral contract existed to begin with.
Therefore, the best practice is to always memorialize the terms of an agreement in writing and avoid “handshake deals” as much as possible, especially in business partnerships and any agreements involving significant amounts of money as well valuable goods and services. In addition, as discussed below, some agreements are subject to the “statute of frauds” and are not enforceable without a written contract.
Statute of Frauds – Contracts that Have to be in Writing
The doctrine of “statute of frauds” is a specific rule, which requires that, in order to be enforceable, specific contracts have to be in writing. Without a written documentation, it is difficult to prove what exactly the parties agreed to, even if you are represented by a Los Angeles breach of contract attorney who has expertise in contractual disputes. The goal of the statute of frauds rule is to prevent fraud and potential arguments over “who said what” regarding the terms of the agreement, which frequently arise in disputes involving oral contracts.
In California, the statute of frauds is codified in Civil Code § 1624. Pursuant to section 1624(a), the following types of contracts have to be in writing:
- A contract that, pursuant to its own terms, cannot be performed within one year
- A promise to pay for someone else’s default, debt, or other financial obligation (“miscarriage”). [There are certain exceptions to this provision, which are covered in California Civil Code § 2794]
- A contract involving real property, where the property is going to be:
- Leased for a period exceeding one year
- A contract where another person (such as a broker or an agent) is employed or authorized to do the following for a commission or compensation:
- Sell real estate
- Purchase real estate
- Lease real estate for a period, which will last longer than one year
- A contract that, pursuant to its own terms, cannot be performed during the promisor’s lifetime [i.e. during the lifetime of a person who promised to do something]
- A contract where, someone who purchases real property, agrees to pay an indebtedness that is secured by a deed of trust or a mortgage [e.g. when a person buys real estate and gets a mortgage from a bank, as opposed to paying the entire purchase price upfront]
- A contract where, a person who is engaged in the business of extending credit or lending money, agrees to extend credit or loan money in an amount that exceeds $100,000 [one hundred thousand dollars]. This provision applies when credit is obtained or money is borrowed “not primarily” for household, family, or personal purposes.
In addition, pursuant to California Commercial Code, the following contracts must also be in writing:
- An agreement for the sale of personal property, where the value of the property exceeds $5,000 [five thousand dollars]. California Commercial Code § 1206.
- An agreement for the sale of goods, where the value of the goods is equal to or exceeds $500 [five hundred dollars]. California Commercial Code § 2201 (1).
An enforceable and valid written contract must have the following elements:
- A written agreement itself or a written “note or memorandum” of the contract;
- The writing has to be signed by the “the party to be charged” or by that party’s agent. [In other words, in contract disputes, the signature of the party that is claimed to have breached the contract is necessary.]; and
- The writing should define the subject matter of the agreement as well as its material terms,
Exceptions Applicable to the Statute of Frauds
The Statute of Frauds has several exceptions. Pursuant to the following exceptions, certain agreements are considered valid and enforceable despite the absence of a written contract:
- Partial Performance – circumstances when a party has already performed (partially or in full) that party’s obligations set forth in the oral contract.
- Promissory Estoppel – circumstances where the following requirements are met:
- a clear and unambiguous promise;
- a foreseeable and reasonable reliance by the party that received the promise; and
- a significant injury or loss suffered as a result of the reliance on the promise.
- Specific Order – an oral contract for the manufacture of custom goods pursuant to a specific order.
- Written Confirmation – circumstances where an agreement between two merchants is confirmed in writing [e.g. an invoice].
- Admission of Validity of Oral Contract – when a party being accused of breaching the terms of an agreement admits that there was a valid oral contract.
Other Types of Contracts that Must be in Writing
Although they are not subject to the “statute of frauds” doctrine, these two types of contracts also have to be in writing in order to be enforceable:
- A premarital agreement (also called “prenuptial agreement”) must be in writing. California Family Code § 1611.
- A mortgage agreement (a contract where the borrower agrees to relinquish the claim to the property in case of an inability to pay the loan) must be in writing. California Civil Code § 2922.
Implied contracts, which are also referred to as “implied-in-fact contracts”, do not involve any written or spoken words. Implied contracts are created by the actions and conduct of the parties. Implied contracts are just as enforceable as oral or written contracts. When evaluating whether or not the parties created an implied contract, the parties’ relationship, conduct, and actions are evaluated in light of the overall surrounding circumstances. In general, an implied-in-fact contract is created when the following requirements are satisfied:
- an “intent to promise” is central to the conduct of the parties; and
- both parties know, or reasonably should know, that their conduct will be interpreted as an agreement to create a contract.
See California Civil Code § 1621; California Civil Jury Instructions (CACI) 305.
For example, if a person goes to a mechanic to replace a car’s brakes, the fact that the person brought the car to the shop and allowed the mechanic to work on it “implies” an agreement to pay for the service. This implied agreement is inferred based on the circumstances, even if the customer did not sign any written agreement and did not say, “I will pay you if you change my car’s brakes”.
Legal Elements of a Breach of Contract Claim: Explained by Los Angeles Contract Litigation Attorney
Breach of contract litigation is a type of business litigation. As a Los Angeles breach of contract lawyer, Cherepinskiy Law Firm is experienced in navigating complex issues that involve contractual disputes. In order to prevail on a breach of contract claim, a plaintiff has to prove the following:
1. That a valid contract was created.
2. Performance or excused non-performance by the plaintiff:
a. The plaintiff performed, or substantially performed, all significant terms that the contract required the plaintiff to perform; or
b. The plaintiff was excused from the obligation to perform the terms of the contract.
3. The defendant breached the contract. There are two types of breaches: a material breach and an immaterial breach.
- Material breach of contract occurs when the breach is so serious, significant and substantial that the non-breaching party does not get any part of the benefit specified for in the contract. When a party commits a material breach of one contractual aspect or term, the laws considers it a material breach of the entire contract. In case of a material breach of contract, the non-breaching party is excused from the contractual obligations owed to the breaching party. The following are examples of material breaches of contract:
E.g. An antiques dealer agrees to sell a rare collectible item to a buyer but, instead, sells it to someone else. This is a material breach, and the buyer is excused from having to pay anything because the buyer never received the collectible item. If the buyer paid for the item in advance, the dealer must return all money to the buyer.
E.g. A staffing agency agrees to provide nurses to a hospital on a temporary and as-needed basis in exchange for a specific rate of payment. Over the course of several months, the agency provides nurses to the hospital, but the hospital completely fails to pay for this service. This is a material breach of contract.
- Immaterial breach of contract happens under these circumstances:
- When the breaching party performed almost all, but not absolutely all, of that party’s obligations under the contract [e.g. a window installer was contracted to install 400 windows in a newly constructed apartment building, but only 395 windows had been installed]
- When the breaching party performed all of the contractual obligations, but the performance was slightly different in its manner than specified in the contract [e.g. a body shop was contracted to paint a sports car in a particular shade of red color, but a slightly different shade of red paint had been applied].
While a party can still sue for an immaterial breach of contract, the recoverable damages will not be as significant as in cases involving material breaches. Using the above window installation example, the plaintiff will be entitled to receive a refund from the installer for the cost of installing 5 missing windows, but the plaintiff will not be completely excused from having to pay for the service.
4. The defendant’s breach caused the plaintiff suffer harm or damage.
See California Civil Jury Instructions (CACI) 303.
Besides the cause of action for Breach of Contract, other claims arising out of violations of contract terms include the following:
- Breach of the Implied Covenant of Good Faith and Fair Dealing
- Unjust Enrichment and Restitution
- Promissory Estoppel
Breach of Implied Covenant of Good Faith and Fair Dealing
The doctrine of the implied covenant of good faith and fair dealing looks beyond the “four corners” of a contractual agreement and creates specific rights that are not explicitly spelled out in a contract. In other words, in order to obtain a remedy pursuant to this principle, a party does not have to prove that the other party breached an express contractual term or provision. In essence, in fulfilling their contractual obligations, the parties have to act with each other in an honest, fair, reasonable, and good faith manner.
When asserting a breach of implied covenant of good faith and fair dealing, the following must be proven:
1. There was a valid contract between the plaintiff and the defendant.
2. The plaintiff fulfilled absolutely all (or substantially all) of the plaintiff’s obligations pursuant to the contract, or the plaintiff was excused from performing the contractual duties;
3. While acting in an unfair manner and in bad faith, the defendant interfered with the plaintiff’s right to obtain the benefits provided for in the contract; and
4. The defendant’s conduct caused the plaintiff to suffer a harm.
See California Civil Jury Instructions (CACI) 325.
Some examples of a breach of implied covenant of good faith and fair dealing are:
- acting dishonestly or deceitfully;
- intentionally performing in an incorrect or imperfect manner;
- acting without diligence;
- not making an appropriate effort to perform; and
- failing to cooperate, or even intentionally interfering, with the performance of the other party’s contractual obligations.
Unjust Enrichment and Restitution
Unjust enrichment elements are: (1) one party receives a benefit from another party, and (2) unjustly retains that benefit at the expense of another party. Essentially, the doctrine of unjust enrichment stands for the proposition that, under certain circumstances, it is simply unfair for a person who received a benefit to keep it.
As a remedy, the one who has been unjustly enriched must return the benefit or its equivalent. A “benefit” can be provided not only when one gives something of value to another (e.g. money, property, or service), but also when one party saves another party from having to incur an expense or suffer a loss. Typically, the aggrieved party has to prove that the benefit was provided and unjustly retained due to request, mistake, coercion, or fraud. When parties have an express contract, the aggrieved party may allege unjust enrichment and contend that the contract is void or unenforceable.
In California, the courts are “divided” on the issue of whether or not “unjust enrichment” is a valid cause of action. In some cases, it was held that unjust enrichment is just a claim for restitution and it is not recognized as a stand-alone and independent cause of action. Other courts concluded that unjust enrichment is an independent “quasi-contract” claim [a fictional contract that is retroactively imposed on the parties that had no contractual relationship] where a plaintiff seeks restitution from a defendant.
Overall, it is well-settled that the terms “unjust enrichment” and “restitution” are synonyms, and these terms are frequently used interchangeably.
In essence, the promissory estoppel doctrine (also commonly referred to as “detrimental reliance”) means the following: When a promisor makes a promise that is reasonably expected to induce a third party to change its position by action or by refraining from exercising a legal right [forbearance], and the third party does change its position in detrimental reliance on the promise, the only way to avoid an injustice is to enforce the promise. This principle, if all of the elements are satisfied, makes a promise enforceable and binding even if there was no consideration [i.e. no exchange of something that had been bargained for].
In order to prove promissory estoppel, these four elements have to be established:
(1) Clear promise – the terms of a promise are unambiguous and clear. Negotiations and preliminary discussions do not constitute a “promise”.
(2) Actual reliance – the party that received the promise actually relied on the promise.
(3) Reasonable reliance – the reliance on the promise has to be foreseeable and reasonable.
If no reasonable person would have relied a promisor’s statement, the fact that a plaintiff relied on that statement due to innocence or faulty reasoning – does not constitute “reasonable reliance”.
If a plaintiff’s conduct was completely unreasonable in light of the plaintiff’s level of intelligence and available information – it also does not qualify as “reasonable reliance”.
(4) Detrimental reliance – the party that received the promise (and relied on it) has to suffer a loss or injury as a result of that reliance.
Defenses to Breach of Contract Claims
As the breach of contract attorney Los Angeles business owners trust, Cherepinskiy Law Firm helps not only those who fall victim to a breach of contract, but also those who need to be defended against such claims. There are multiple defenses which, if proven, can completely invalidate a breach of contract allegation. The following are some of the most common defenses:
Unilateral Mistake of Fact
The “unilateral mistake of fact” defense applies when a defendant proves the following: (1) the plaintiff had knowledge that the defendant had a mistaken belief and (2) the plaintiff unfairly used that mistaken belief in order to take advantage of the defendant. The defendant’s mistaken belief has to be about a material fact, not an immaterial [insignificant] issue.
The essence of the “bilateral mistake” defense is the argument by a defendant that the parties never entered into a valid contract to begin with because: (1) both parties had a mistaken belief with respect to some material issue and (2) had the defendant known about that mistake, the defendant would not have entered into the contract with the plaintiff.
A defendant can potentially invalidate a contract by arguing that the defendant’s consent to enter into the contract was provided under duress. Specifically, the defendant has to establish the following three elements:
(1) The plaintiff utilized a wrongful threat or act in order to pressure the defendant into agreeing to enter into a contract [e.g. a threat of a criminal act (or even a criminal prosecution) makes a contract unenforceable];
(2) The plaintiff’s wrongful threat or act intimidated or scared the defendant so much, that the defendant had no alternative but to succumb and agree to enter into the contract; and
(3) Without the plaintiff’s wrongful threat or act, the defendant would not have agreed to enter into the contract with the plaintiff.
A defendant may use this affirmative defense and contend that no valid contract was ever created, because a plaintiff exerted undue influence and unfair pressure upon the defendant in order to enter into a contract. To prevail, the defendant has to satisfy these two requirements:
(1) The plaintiff used one (or more) of the following factors to pressure or induce the defendant to agree to enter into a contract:
- the defendant’s distress;
- the defendant’s needs;
- the defendant’s weakness of mind;
- a special relationship between the plaintiff and the defendant; and
(2) Without this pressure, the defendant would not have agreed to enter into the contract with the plaintiff.
If a plaintiff used fraudulent or false representations to induce a defendant to enter into a contractual relationship, the defendant has the following options:
- Rescind (i.e. cancel) the contract;
- Affirm the contract, keep the benefits obtained pursuant to the contract, and proceed with a legal action to obtain compensation for the damages sustained as a result of the plaintiff’s fraud; or
- Use the plaintiff’s fraud as a partial or complete affirmative defense in a breach of contract action by the plaintiff.
A defendant in a breach of contract case may successfully contend that a plaintiff “waived the breach” under the following circumstances:
(1) The plaintiff knew about the defendant’s breach of contract; and
(2) The plaintiff continued to accept the [incomplete or somehow deficient] performance from the defendant. In other words, the plaintiff’s actions were inconsistent with an intent to enforce the plaintiff’s rights pursuant to the contract and, therefore, it was reasonable to conclude that these rights had been waived [given up or relinquished].
The gist of the “novation” defense is the argument by a defendant that the original contract is no longer enforceable, because the parties replaced it with a completely new contract. The defendant has to establish that all parties agreed [explicitly through words or implicitly through actions] as follows:
(1) That the original contract is canceled; and
(2) That the original contract will be substituted with a different and new contract.
Statute of Limitations
To succeed, a defendant must prove that a plaintiff’s case was filed late and, as a result, it is barred by the statute of limitations. In California, oral and written contracts have two different statutes of limitations as follows:
- Written contracts – four (4) years. See Code of Civil Procedure § 337(a); and
- Oral contracts – two (2) years. See Code of Civil Procedure § 339(1).
Accord and satisfaction
The doctrine of “accord and satisfaction” means that one party agrees to accept a consideration that is less than the one originally bargained for [i.e. required pursuant to the contract]. In this concept, the term “accord” means an agreement, and the term “satisfaction” means a performance pursuant to the new agreement. When asserting this defense and claiming there was no breach of contract, the defendant contends that the defendant’s obligation to the plaintiff has already been satisfied. It is, essentially, a settlement agreement.
- For example: A borrower takes a $100,000 loan from a lender. Having repaid only $20,000, the borrower stops making loan payments. When a dispute with the lender arises, the borrower still owes $80,000 to the lender. The borrower then sends a check to the lender in the amount of $40,000, and the check states “payment in full”. If the debtor deposits or cashes this check, the borrower can argue that the lender accepted $40,000 as an “accord and satisfaction” of the entire outstanding $80,000 loan balance, and that the borrower does not owe anything else to the lender. In this scenario, if the lender wants to recover the entire $80,000 balance from the borrower, the lender must return the $40,000 check to the borrower without either cashing or depositing it.
Damages for Breach of Contract
California Code of Civil Procedure § 3300 defines the nature of the damages for breach of contract as follows: The amount of damages is intended to compensate the aggrieved party for (1) the detriment that was “proximately caused” by the breach or (2) the detriment that, in the ordinary course of things, is likely to be caused by the breach of contract. In other words, based on the statutory law as well as the decisions by California courts, the main purpose of breach of contract damages is – to place the plaintiff in the same position that the plaintiff would have held if the breach of contract had not occurred.
In general, the damages that the plaintiff is entitled to are designed to be equal to the benefit that the plaintiff bargained for in the contract. Pursuant to California Code of Civil Procedure § 3358, the damages to be recovered by the plaintiff for a breach of contract cannot be greater than the amount (or benefit) the plaintiff would have received had both parties performed the contract in full.
In addition, California Code of Civil Procedure § 3359 requires that damages awarded in breach of contract cases should be reasonable. In matters where contractual obligations establish rights to obtain “grossly oppressive” damages or “unconscionable” damages, justice requires to limit recoverable damages to reasonable damages.
Finally, speculative damages are not recoverable. Per California Code of Civil Procedure § 3301, recoverable damages in breach of contract actions have to be clearly ascertainable with respect to their origin and nature.
As the breach of contract lawyer Los Angeles businesses and entrepreneurs come to seeking help with contractual disputes, Cherepinskiy Law Firm is ready to explain to you the remedies available to plaintiffs in such claims. The types of damages recoverable in breach of contract cases are as follows:
General damages, which are also commonly referred to as “direct damages”, represent a natural and foreseeable consequence of a breach of contract. The occurrence of general damages is considered to be a predictable outcome of a breach, which the parties considered when they were in the process of entering into their contractual relationship.
Special damages, which are also known as “consequential damages” and “incidental damages”, do not represent a natural and predictable result of a breach of contract. The recovery of this type of damages depends on specific circumstances that are unique to the case. Special damages are recoverable only if the plaintiff can prove the following: at the time when the parties entered into the contract, the defendant either knew or should have known of the special circumstances that make the recovery of special damages warranted.
California law allows contracts to contain terms providing for liquidated damages in case of a breach. A liquidated damages clause explicitly designates a specific monetary amount that must be paid by the party that breaches the contract. Unless the breaching party proves that a liquidated damages provision is unconscionable (unusually harsh or excessively unfair), such provisions are fully enforceable.
Specific performance is an equitable remedy. In some cases, the subject matter of a contract is unique or the actual amount of damages is not clearly ascertainable. In such cases, an award of monetary damages is not going to be sufficient to place the plaintiff in the same position that the plaintiff would have occupied in the absence of the breach. The remedy is to order specific performance – i.e. order the defendant to perform all of the defendant’s contractual duties and obligations. For example, this type of remedy may be ordered in matters involving contracts for the sale of unique property (e.g. real estate, classic cars, collectible or antique objects).
No Punitive Damages in Breach of Contract Cases
In California, punitive damages (also called “exemplary damages”) cannot be recovered in breach of contract cases. This rule applies even when the party that breached the contract acted with malice, oppression, or fraud. The only exception to this rule is when the breach involves an intentional tort.
Take Steps to Prevent Breach of Contract Issues: Consult With Breach of Contract Attorney Los Angeles Businesses Trust
Is it possible to completely avoid the risk of encountering a breach of contract? Of course, a Los Angeles contract litigation attorney who regularly sees these claims will tell you that it is impossible to guarantee a breach-free and seamless business relationship. The risk of a breach of contract is always present. However, certain steps can definitely be taken to reduce the potential for arguments, misconceptions, as well as legal disputes, claims, and litigation involving contractual agreements. Some important risk-reduction techniques include the following:
- Avoiding oral agreements and “handshake” deals;
- Memorializing the terms of an agreement in a written contract; and
- Consulting with a business lawyer and making sure your lawyer is involved in the process of reviewing, drafting (if necessary), and finalizing the contract.
Take Action! Promptly Contact a Los Angeles Breach of Contract Lawyer for a Free Consultation
If you believe that a third party violated the terms of an agreement, or if your business or you personally are accused of breaching a contract, it is crucial to immediately consult with one of Los Angeles contract litigation attorneys. Please request a free consultation now by telephone or through an electronic contact form. Cherepinskiy Law Firm, as the breach of contract attorney Los Angeles residents and businesses can rely on, will work diligently and cost-effectively, and will do everything it takes – from settlement negotiations and mediation to litigation and trial – to make sure your rights and financial stability are protected.
This firm provides legal services throughout California, including Los Angeles and Orange Counties, as well as Riverside, San Bernardino, and Ventura Counties.
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