Business Contract Lawyer
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By: Brad Nakase, Attorney
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A business contract is a written agreement between two or more business parties enforceable in court. There are countless types of business contracts which may include: services contracts, employment contracts, business partnership contracts, and sales contracts. It is not uncommon for business owners to ask when does a breach of contract occurs? In this article, our breach of contract lawyer will when there is a breach of business contract.
The definition of a breach of contract is where a party to a contract did not perform an important requirement stated in the agreement. Under California breach of contract law, the essential elements to be pleaded and proved in an action for breach of contract are (1) the existence of the contract; (2) plaintiff’s performance of the contract or excuse for non-performance; (3) defendant’s breach of the contract; and (4) the resulting damage to the plaintiff. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
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. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150; FPI Dev., Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 383; Breach of contract lawyer (1985) 166 Cal.App.3d 452, 458-59.)
“The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable.” (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 777.)
A contract is an agreement to do or not to do a certain thing and gives rise to an obligation or legal duty that is enforceable in an action at law. (AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 224 Cal.App.4th 883; Breach of contract lawyer (1993) 15 Cal.App.4th 1243, 1246 [no contract existed because political candidate did not promise anyone that he would abide by code of Fair Campaign Practices].)
Stating the substance and legal effect of the contract in the complaint is sufficient, but attaching a copy of a written contract to the complaint is advisable. (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394.)
A severable contract is one that is susceptible of division in two or more parts. The failure to prove breach of contract for one part of a severable contract does not bar plaintiff’s right to recovery for breach of another part of the severable contract. (Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375.)
The plaintiff must prove that he has fulfilled his obligations and complied with any and all conditions and agreements of the contract that he is required to perform. If plaintiff was unable to perform because defendant prevented him from doing so, plaintiff must allege such excuse for non-performance in the complaint. (Brown v. Grimes (2011) 191 Cal.App.4th 256, 277-279.)
“The obligations of the parties to a contract are either dependent or independent. The parties’ obligations are dependent when the performance by one party is a condition precedent to the other party’s performance. In that event, one party is excused from its obligation to perform if the other party fails to perform. If the parties’ obligations are independent, the breach by one party does not excuse the other party’s performance. Instead, the nonbreaching party still must perform and its remedy is to seek damages from the other party based on its breach of the contract.” (Colaco v. Cavotec SA (2018) 25 Cal.App.5th 1172, 1182-1183.)
Whether specific contractual obligations are independent or dependent is a matter of contract interpretation based on the contract’s plain language and the parties’ intent. Dependent covenants or conditions precedent are not favored in the law, and courts shall not construe a term of the contract so as to establish a condition precedent absent plain and unambiguous contract language to that effect. (Colaco v. Cavotec SA (2018) 25 Cal.App.5th 1172, 1182-1183.)
A breach is defined as defendant’s unjustified or unexcused failure to perform. The plaintiff must plead the facts constituting the breach in unequivocal language. (Stephens v. Stephens XII, LLC v. Fireman’s Fund Ins. Co. (2014) 231 Cal.App.4th 1131, 1147.)
Breach can be the result of (1) the defendant’s specific acts or conduct; (2) the defendant’s negligent performance; or (3) the defendant’s failure to act or perform. (Stephens v. Stephens XII, LLC v. Fireman’s Fund Ins. Co. (2014) 231 Cal.App.4th 1131, 1147.)
The plaintiff must allege sufficient facts to apprise defendant of the specific conduct that violates the contract, but need not allege evidentiary facts. (Wise v. Southern Pac. Co. (1963) 223 Cal.App.2d 50, 62, disapproved on other grounds, Breach of contract lawyer (1994)7 Cal.4th 503, 510.)
A defendant cannot be liable for breach of contract until the time specified for performance has arrived. (Stephens v. Stephens XII, LLC v. Fireman’s Fund Ins. Co. (2014) 231 Cal.App.4th 1131, 1147.) If the defendant voluntarily puts it out of his power to do what he has agreed to in the contract, then he has breached the contract by an implied repudiation and is immediately liable for such breach, even though the time specified for performance has not yet expired. (Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863.)
If a defendant fails to perform under all or a portion of a contract but does not repudiate the contract, and expresses a willingness to perform under the contract, the plaintiff may treat such non-performance as a total breach of the contract if the plaintiff believes performance is either unlikely or would be forthcoming only when it suited the defendant’s convenience. (Sackett v. Spindler (1967) 248 Cal.App.2d 220, 230-31.)
The defendant must be obligated to perform according to the specific terms of a contract and the failure to perform other agreements not part of the subject contract does not constitute a breach of contract. (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887.)
Implicit in the element of damage is that the defendant’s breach caused the plaintiff’s damage. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352.)
Any breach, total or partial, which causes a measurable injury, gives the injured party a right to compensatory damages. (Brawley v. J.C. Interiors, Inc. (2008) 161 Cal.App.4th 1126.)
An essential element of breach of contract claims is that a defendant’s alleged misconduct was the cause in fact of the plaintiff’s damage. The causation analysis involves two elements. One is cause in fact. An act is a cause in fact if it is a necessary antecedent of an event. The second element is proximate cause. Proximate cause is ordinarily concerned, not with the fact of causation, but with the various considerations of policy that limit an actor’s responsibility for the consequences of his conduct. (Tribeca Companies, LLC v. First American Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1102-1103.
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.)
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.)
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. (Breach of contract attorney (1990) 226 Cal.App.3d 442, 457, 277; Breach of contract attorney (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 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.)
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.)
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.)
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. (Breach of contract lawyer (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. (Breach of contract attorney (2003) 107 Cal.App.4th 1, 4-5.)
Unconscionability is a contract defense. The unconscionability doctrine ensures that contracts, particularly contracts of adhesion, do not impose terms that are overly harsh, unduly oppressive, so one-sided as to shock the conscience, or unfairly one-sided. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899; Cal. Civ. Code, §1670.5.)
The doctrine of unclean hands is a defense available in both legal and equitable actions. (Jade Fashion Co., Inc. v. Harkham Industries, Inc. (2014) 229 Cal.App.4th 635, 653.)
To prevail on a unilateral mistake claim, the defendant must prove that the plaintiff knew that the defendant was mistaken and that plaintiff used that mistake to take advantage of the defendant: “Defendants contend that a material mistake of fact – namely, the defendants’ belief that they would not be obligated to install a new roof upon the residence – prevented contract formation. A unilateral mistake of fact may be the basis of relief. However, such a unilateral mistake may not invalidate a contract without a showing that the other party to the contract was aware of the mistaken belief and unfairly utilized that mistaken belief in a manner enabling him to take advantage of the other party.” (Meyer v. Benko (1976) 55 Cal.App.3d 937, 944.)
Where, as here, the extrinsic evidence is not in conflict, the determination of whether a mutual mistake occurred is a question of law. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 527.) “Ordinary negligence does not bar a claim for mutual mistake because ‘“[t]here is an element of carelessness in nearly every case of mistake . . . .”’ ‘Only gross negligence or ‘preposterous or irrational’ conduct will [bar] mutual mistake.’” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1243.)
“Menace” is considered to be duress: “Under the modern rule, ‘“[d]uress, which includes whatever destroys one’s free agency and constrains [her] to do what is against [her] will, may be exercised by threats, importunity or any species of mental coercion. It is shown where a party ‘intentionally used threats or pressure to induce action or nonaction to the other party’s detriment.’”’ The coercion must induce the assent of the coerced party, who has no reasonable alternative to succumbing.” (In re Marriage of Baltins (1989) 212 Cal.App.3d 66, 84.)
Different elements may apply if economic duress is alleged to avoid an agreement to settle a debt. (Perez v. Uline, Inc. (2007) 157 Cal.App.4th 953, 959-960.) The doctrine of economic duress can apply when one party has done a wrongful act which is sufficiently coercive to cause a reasonably prudent person, faced with no reasonable alternative, to agree to an unfavorable contract. The party subjected to the coercive act, and having no reasonable alternative, can then plead economic duress to avoid the contract. (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 644.)
Undue influence consists of the use of excessive pressure by a dominant person over a servient person resulting in the apparent will of the servient person being in fact the will of the dominant person. The undue susceptibility to such overpersuasive influence may be the product of physical or emotional exhaustion or anguish which results in one’s inability to act with unencumbered volition. (Keithley v. Civil Service Bd. of the City of Oakland (1970) 11 Cal.App.3d 443, 451.)
Fraud may be asserted as an affirmative defense: “One who has been induced to enter into a contract by false and fraudulent representations may rescind the contract; or he may affirm it, keeping what he has received under it, and maintain an action to recover damages he has sustained by reason of the fraud; or he may set up such damages as a complete or partial defense if sued on the contract by the other party.” (Grady v. Easley (1941) 45 Cal.App.2d 632, 642.)
The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right. Thus, “California courts will find waiver when a party intentionally relinquishes a right or when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” (Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 78.)
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.)
“A novation is a substitution, by agreement, of a new obligation for an existing one, with intent to extinguish the latter. A novation is subject to the general rules governing contracts and requires an intent to discharge the old contract, a mutual assent, and a consideration.” (Klepper v. Hoover (1971) 21 Cal.App.3d 460, 463.
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