Breach of contract California elements

Element 1: A Valid Contract

In a breach of contract action, the plaintiff must plead the existence of a contract and its terms that establish the obligation at issue. The complaint must indicate on its face whether the contract is written, oral, or implied by conduct. If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint, or a copy of the written contract must be attached to the complaint and incorporated by reference. FPI Dev., Inc. v. Nakashima, 231 Cal. App. 3d 367, 383; see also CAL. CIV. PROC. CODE §430.10(g).

Element 2: Defendant’s Failure to Execute a Promise

Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party. This failure may arise from a willful breach of the promise. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221; Bliss v. California Coop. Producers (1947) 30 Cal.2d 240, 248; Taliaferro v. Davis (1963) 216 Cal.App.2d 398, 410-11.)

The promise that is breached need not be expressly stated in the contract. (Bliss v. California Coop. Producers (1947) 30 Cal.2d 240, 249 [even in absence of express promise and fixed time for performance in contract, court implied promise by corporation to market and process growers’ agricultural products and pay insurance premiums for at least ten years where growers had given corporation notes payable in annual installments over ten years as an extension of credit to corporation].)

Failure of consideration (as distinguished from lack of consideration) is not based upon facts existing at the time the parties entered the contract, but instead, upon some fact or contingency that occurs between the time the parties contracted and the action resulting in the material failure of performance by one of the parties; therefore, the contract is not void, but rather is a ground for rescinding the contract, which remains in effect until it is rescinded or terminated. (Nmsbpcsldhb v. Cnty. of Fresno (2007) 152 Cal.App.4th 954; Taliaferro v. Davis (1963) 216 Cal.App.2d 398, 411 [no failure of consideration under marital property settlement agreement where wife secured writ of execution and caused sale of property to satisfy debt due from plaintiff husband].)

A party may rescind for partial failure of consideration even if there has been partial performance by the party against whom the rescission is sought. (Koenig v. Warner Unified School Dist. (2019) 41 Cal.App.5th 43.)

Element 3: Breach Must Be Material

For a breach to justify abandonment of the contract, the promise must “go to the root of the contract,” so that a failure to perform it would render the performance of the rest of the contract different in substance from what was contracted. (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501.)

To determine if a breach is material, courts consider the following: (1) the extent of actual performance or preparation; (2) the defaulting party’s good faith, or lack thereof; (3) hardship, if any, resulting to the defaulting party; and (4) the adequacy of damages to compensate the non-defaulting party. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221.)

A party must assume a legal duty in making the promise. (Bleecher v. Conte (1981) 29 Cal.3d 345, 350, 352 [buyer’s obligation to proceed diligently and in good faith with recordation of tract map and obtain city approval to develop property constituted valid consideration].)

       Willful Failure to Perform:

A willful default may be material even though the innocent party suffers no economic loss. (Coleman v. Mora (1968) 263 Cal.App 2d 137, 150 [owner was justified in rescinding exclusive listing agreement where broker did not produce any prospective buyers and made only nominal efforts to advertise property]; Wilson v. Corrugated Kraft Containers, Inc. (1953) 117 Cal.App.2d 691, 697 [fact that seller might have sold its product elsewhere did not diminish the materiality of buyer’s failure to purchase its requirements from seller].)

Plaintiff’s failure to correct stucco defects on defendants’ house, after receiving ample notice to correct the problem, was willful and intentional, and therefore, a material breach that justified defendants’ rescission of the contract. (Bonadelle Construction Co. v. Hernandez (1959) 169 Cal.App.2d 396, 399.)

Delay in Performance/“Time Is of the Essence”:

Mere delay in performing a contract is not a material breach unless the delay is such as to warrant the conclusion that the party does not intend to perform. (JMR Construction Corp. v. Environmental Assessment & Remediation Mgmt., Inc. (2015) 243 Cal.App.4th 571.) Delay in performance is a material failure of consideration only if time is of the essence. (Johnson v. Alexander (1976) 63 Cal.App.3d 806, 813.)

If prompt performance is, by the express language of the contract, or by its very nature, a vital matter, time is of the essence of the contract, and a delay in performance is a material failure of consideration. (Johnson v. Alexander (1976) 63 Cal.App.3d 806, 811.)

Time is not of the essence unless it clearly appears from the terms of the contract or, in light of all circumstances, that this was the intention of the parties. However, no specific words are necessary to make time of the essence. (Root v. American Equity Specialty Ins. Co. (2005) 130 Cal.App.4th 926.)

The timing of the breach is relevant in determining the materiality of the breach. A breach prior to or at the outset of performance may justify rescission when the same breach late in performance would not be significant. When the failure to perform is at the outset, it is helpful to consider whether it would be more just to free the injured party or to require him to perform his promise, in both cases giving the injured party a right of action if the failure to perform was wrongful. (Associated Lathing and Plastering Co. v. Louis C. Dunn, Inc. (1955) 135 Cal.App.2d 40, 50 [subcontractor materially breached contract by failing to cooperate with general contractor on several occasions, even though dollar amounts involved were relatively minor, because contract provided that time was of the essence, and all indications were that subcontractor’s delay and failure to cooperate were going to continue throughout term of contract].)

When no time is specified for doing an act, other than paying money, a demand for performance is necessary to put the promisor in default. (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331.)

Element 4: Resulting Damage

Any breach, total or partial, which causes a measurable injury, gives the injured party a right to compensatory damages. Borgonovo v. Henderson, 182 Cal. App. 2d 220, 231.

Remedies

Compensatory Damages

The measure of damages for breach of contract is the amount which will compensate plaintiff for all detriment proximately caused by the breach or which, in the ordinary course of things, would be likely to result from the breach. (Cal. Civ. Code, § 3300.)

Restoration

Damages for breach of contract ordinarily include all amounts necessary to place plaintiff in same position as if breach had not occurred. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 515.)

Lost Profits

Future profits can be recovered to extent they can be estimated with reasonable certainty. (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907-08; Fisher v. Hampton (1975) 44 Cal.App.3d 741, 747. Lost profits are recoverable to extent they are natural and direct consequence of breach. (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 457, 277; Postal Instant Press v. Sealy (1996) 43 Cal.App.4th 1704, 1709 [franchisee’s failure to make timely royalty payments to franchisor was not a “natural and direct” consequence of the breach because franchisor chose to terminate contract, thus losing entitlement of future royalty payments].)

Rescission and Restitution

Rescission and restitution are alternative remedies in action for damages where there has been repudiation or material breach of a contract, transfer of unique goods is involved, other remedies are inadequate, subject of contract still exists and interests of innocent purchasers for value and defendant’s creditors will not be unjustly affected. (Wong v. Stoler (2015) 237 Cal.App.4th 1375.)

Equitable Relief

Specific Performance

Specific performance is granted only when money damages are inadequate. (Palo Alto- Menlo Park Yellow Cab Co. v. Santa Clara County Transit Dist. (1976) 65 Cal.App.3d     121, 132-33.)

Injunction (Very Limited Availability)

Injunctive relief is largely within discretion of trial court, considering inadequacy of      damages to plaintiff, as well as harm to defendant. (Smith v. Mendonsa (1952) 108    Cal.App.2d 540, 543-44.)

Statute of Limitations

Generally, the limitations period is four years for written contracts (Cal. Civ. Proc. Code, §337, subd. (a)), and two years for oral agreements. (Cal. Civ. Proc. Code, §339, subd. (1)). A contract cause of action does not accrue until the contract has been breached. (Spear v. Cal. State Automobile Assn. (1992) 2 Cal.4th 1035, 1042.) The discovery rule may be applied to breaches of contract which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time. (Gryczman v. 4550 Pico Partners, Ltd. (2003) 107 Cal.App.4th 1, 4-5.)

Affirmative Defenses

Note: “Failure of consideration” and “failure to perform” are often used as affirmative defenses to a charge of breach of contract, as well as grounds for rescinding or terminating a contract. If a defendant relies on the plaintiff’s failure to perform as a defense to his own nonperformance, he must plead and prove such failure to perform specifically as an affirmative defense. (See Bliss v. California Coop. Producers (1947) 30 Cal.2d 240, 248; Boswell v. Reid (1962) 199 Cal.App.2d 705, 713.)

No Notice of Rescission Required

A party does not waive his right to rely upon the defense of failure of consideration by failing to announce a formal rescission. He can either take affirmative action by rescinding the contract or wait and defend against the action on the ground of failure of consideration. (Benson v. Andrews (1955) 138 Cal.App.2d 123, 136.)