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Breach of Contract Laws and Consequences: According to California Business Litigation

Updated: Sep 26, 2022

What Does It Take To File Breach of Contract Claims In California?

Disputes over claims that one party failed to uphold their end of the bargain are just as expected. When such disagreements arise and cannot be resolved, you can hire a reputable Los Angeles Business Litigation Lawyer who will work to settle the conflict before it becomes a burden on you and your company.

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Contracts are the backbone of a business structure. Your company is run by a contract between partners, owners, or shareholders. Contract laws control your relationships with your vendors. Contracts govern business loans and lines of credit, capital investments, mergers, and acquisitions. Contract law also applies to employees and officers. As a result, if a contractual dispute occurs, a claim for breach of contract is almost always made.

Contracts have the advantage of being straightforward. Contracts make clear what is required of the parties, unlike other legal theories that include a review of laws and case law to decide what duties the parties are under.

Sadly, this does not imply that contracts are self-enforcing. In order to enforce your contract rights, you must first prove the violation, followed by the often daunting task of arguing how much you or your company is affected by the breach.

Working with a Business Law Attorney will, fortunately, assist you in fighting for and winning your case in court. You'll be on your way to seeking compensation for damages incurred if you understand how breach of contract cases are treated and how to work with a competent Business Law Attorney to prove your case.

How Do Contracts Work?

Contracts define the duties of the contracting parties in ideal situations and in the case of any adverse or ambiguous event. A good contract should eliminate the possibility of business and relationship conflicts as far as possible while still protecting the signers in any situation. Breach of contract cases can be difficult, but with the help of an experienced Business Law Attorney, the damages that a broken contract can cause can be minimized.

Contractual breaches can have a cascading impact. If a business partner breaches a contract, he or she may be unable to meet other contractual commitments with other parties, potentially resulting in further breach of contract lawsuits. Such entanglements can jeopardize a company's ability to function as a whole. These cases can quickly escalate into complete nightmares that are expensive, time-consuming, and disheartening, with far-reaching consequences that affect every aspect of a company's operations.

It's worth noting that the California Civil Code and case law regulate all aspects of contract law, including what counts as a contract, what counts as a breach of contract, and what defenses and remedies are applicable. Since California civil codes and case law are constantly changing, it's critical to enlist the help of a Business Law Attorney to successfully litigate or defend against a breach of contract lawsuit. The law of contracts in California is often vague and complex. A skilled solicitor would know how to interpret the law properly to achieve the best possible outcome.

What is a Contract Breach?

A Business Law Attorney who has handled several breaches of contract cases will interpret the facts of a contract and lay the groundwork for a breach of contract lawsuit. In certain cases, a minor change or modification can be all that is required to resolve a disagreement. The most common root causes of a contract dispute are the terminology or exact words in the face of such contingencies. A Business Litigation Lawyer would have the knowledge and experience to spot any flaws that the signing parties may have missed, as well as any new details that may be useful in resolving the conflict or defining the breach. Relevant details may include:

  • The contract's validity in terms of its effective dates and initial authorship

  • The contract's original purpose and scope of application

  • Some important or relevant incidents that have occurred between the signing parties since the contract went into effect

  • How long and how well the parties concerned held the contract until the dispute?

  • Changes in the business or the lives of the signing parties after they signed

  • Identifying whether the disagreement is a legitimate disagreement based on good faith or the outcome of some other problem that isn't immediately apparent

  • The precise circumstances that led to the conflict, as well as the contract clauses that are at issue

A successful Business Law Attorney will save a case from going to trial and involving lengthy, expensive litigation. Fortunately, contract disputes are often resolved outside of the courtroom. Contract arbitration, if done properly, would not go to trial or have long-term repercussions. Frequently, the two parties will come to an amicable agreement. A Business Litigation Lawyer with a lot of experience in these types of cases can serve as mediator to help you achieve an agreement as easily, painlessly, and cheaply as possible.

Both sides can save money on legal costs if the parties involved can reach an agreement. They might also be able to save the relationship. Legal counsel may bring in a third party to serve as a mediator or refer the parties to arbitration to resolve the contract's terms.

What Are the Essential Components of a Contract Breach?

There are four basic conditions that must be present in order for a breach of contract to be considered legal. Part of your Business Litigation Lawyer's services will include assisting you in proving that certain elements are present so that the court will hear your case. Here are the elements that your breach of contract counsel must present to the court to prove that your argument is valid:

  • Whether or not a Contract Exists. A contract is the starting point for a breach of contract lawsuit. A contract is an agreement between two parties that involves the performance of one party in exchange for some legal consideration. The contract can take any form: it can be informal writing, in an email, in many letters, on the back of a napkin, or simply spoken.

    • However, implementing a contract is much simpler with a signed, well-written agreement, ideally prepared by a Business Litigation Lawyer. There must have been an offer, the other party must have accepted the offer, and consideration must have been agreed upon to establish the existence of a contract. A contract can be as complicated as a multi-party business acquisition, as straightforward as a handshake between neighbors, or as simple as tapping on your Uber app.

  • Evidence that you fulfilled your obligations. A court would not expect you to perform your duties if the other party violated their contractual terms before you did. However, it is critical to demonstrate that you fulfilled at least some of the contract's requirements if it was within your power to do so.

  • Evidence that the other party did not fulfill its obligations. You must be able to demonstrate that the other party did not violate their contractual obligations and that you did not prohibit them from doing so.

  • Evidence of Damages As a Result of the Breach. Most significantly, you must be able to demonstrate that you sustained damages as a result of the other party's violation. You must be able to demonstrate a monetary loss, substantial inconvenience, or other forms of harm as a direct consequence of the contract's failure to be fulfilled.

Total vs. Partial Contract Breach

A case may be filed in California for a breach of contract, whether it is a complete or partial breach of the contract. A complete violation occurs when the guilty party fails to carry out all of the contractual obligations that were previously agreed upon in the contract. A partial violation, on the other hand, happens when their duties are only partly or incorrectly met. A Business Litigation Lawyer will be able to go over these details with you and help you figure out how much compensation you're entitled to depending on how well the contractual arrangements were followed.

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Contractual Breach (Material or Immaterial)

The question of whether a breach of contract was substantive or immaterial is crucial in deciding whether it can be enforced. When a violating party breaches essential contract terms, it is called a substantive breach of contract. For example, if initial development work is postponed for a short period of time, it can not be significant. However, where a hotel's grand opening is scheduled, a contractor's failure to produce the promised signage in front of the building on time would be a material violation. An immaterial breach of contract can not be actionable as a contract breach or result in provable damages or losses. A complete breach of contract will almost always be considered a material breach, although immaterial damages can also be sought in some situations. In the case of a partial breach of contract, the damages can be material or immaterial, depending on the circumstances.

  • Material Breach. A "material" breach of contract is one that hits so profoundly at the heart of the contract (a failure to execute the contract) that it makes the arrangement "irreparably breached" and defeats the object of the contract in the first place. The violation must go right to the heart of the parties' agreement. If there is a substantive violation (also known as a "total" breach), the other party may actually terminate the arrangement and seek damages from the other party in court.

    • Courts also consult the Restatement (Second) of Contracts for guidance in determining if a violation is substantive, as well as other court decisions arising from contract disputes. The factors mentioned below are generally applicable in deciding whether a contract violation was a material breach.

  • What is the Loss (or Forfeiture) for the Breaching Party? What has the breaching party done so far to keep its end of the bargain? This aspect is often influenced by timing: how far along with the parties are in carrying out their contractual obligations before the contract is breached. Consider a homeowner who commissions a custom kitchen from a contractor. If the homeowner reports a breach of contract after the kitchen is nearly finished, the contractor will lose a lot more time and money than if the breach was announced before construction started. If the majority of the contractual obligations have been met, you would be less likely to be able to claim a substantive breach of contract and thereby void the contract.

What Are the Chances of the Breaching Party Making It Right?

The less likely a breach of contract is substantive, the more likely the violating party will and can address the issue. If the other party demonstrates that issues are likely to be resolved, such as by providing protection for its promised payment or other fair guarantees that it will uphold the agreement, or if the economy or market changes in favor of success, the breach of contract is less likely to be material. Signs of financial weakness or payment defaults, on the other hand, indicate that the issues are less likely to be resolved (and make it more likely that you could rely on a material breach of contract to cancel the contract).

  • Is it possible that the Breaching Party acted in bad faith?

    • When a case is taken to court, the court is more likely to conclude a substantive breach of contract if the breach was intentional or resulting from bad faith or unfair dealing. A violation caused by carelessness ("negligence") or circumstances outside the party's control, on the other hand, is less likely to be considered a substantive breach of contract.

  • Is the non-breaching party "ready, willing, and able" to fulfill its obligations?

    • It's not enough to merely claim that the other party breached the contract materially. If the contract's obligations haven't been fulfilled yet, the non-breaching party must be "ready, willing, and able" to do so.

What Is In The Contract?

Certain contracts specify what constitutes a substantive breach of contract. Instead of relying on a judge's judgment or interpretation of the law in the event of a dispute, the parties should have a clause in the contract specifying that a violation of such contract terms would be considered substantive breaches.

For example, a provision that specifies that such actions will be considered material violations of the contract, such as failure to make payments, failure to retain insurance, or failure to meet certain revenue targets. Since delays in performance and payment aren't always considered material breaches, some contracts have a clause that says "time is of the essence," implying that certain types of delays would be considered material breaches.

Contract Breach: Anticipatory Breach (Repudiation)

Any contract can be considered violated ("breached") if one party unconditionally refuses to perform as promised under the contract, regardless of when that performance is expected to occur. A contract's "repudiation" refers to this unequivocal rejection.

When one party to a contract suggests that it will not fulfill its contract obligations—either by words or actions—the other party will assert a breach of contract (failure to perform under the contract) and demand damages such as payment. An anticipatory breach of contract is a term used to describe this situation.

Where Does Repudiation Take Place?

When it comes to contract law, courts typically consider three forms of repudiation:

  • The other party is given a firm and unequivocal rejection ("express repudiation").

  • "I'm not going through with the deal," the other party would essentially tell you. An eligible or vague refusal is insufficient.

  • A behavior renders the output of the other party unlikely.

  • When it comes to rebuking, deeds speak louder than words.

  • The land that is the focus of the transaction is sold to a third party.

When a contract for the selling of property is breached, repudiation happens when one party transfers (or agrees to transfer) the property to a third party.

Special Rules for Contracts for the Sale of Goods

A protocol for dealing with anticipatory violation is prescribed by the Uniform Commercial Code (UCC), which governs the sale of products. You have the right to claim an "adequate guarantee of success" of the contract if you have reason to believe the other party would not fulfill its obligations. You have the option of deferring your own contract performance before the guarantee is received. If the other party fails to comply with your assurance request after 30 days, the contract is formally terminated ("repudiated").

Can You Take It Back If You Repudiate It?

A party can repudiate a contract and then retract the repudiation if the other party has not made a "material shift" in their position as a result of the repudiation.

When All That Remains Is Payment

The rules mentioned in this section don't apply if the only contract duty left is for one party to pay money to the other, which might seem to be an unusual quirk. In these situations, the party requesting the payment must wait until the payment's due date has expired. (If one party has reason to assume they will not be paid, there is no allegation of anticipatory breach.)

The Duty of the Non-Breaching Party to Mitigate

There's one more twist in the anticipatory breach story: Most courts require the other party to act quickly if one party repudiates the contract in order to avoid incurring undue costs or expenses. This is known as "mitigating losses," and it basically means that you can't just sit around and wait for things to get worse. This also explains why certain parties refuse to fulfill their obligations under a contract: It allows the other party more time to mitigate their losses, potentially lowering the number of money damages awarded in a breach of contract case.

Breach Notice

If you're involved in a contract dispute and believe the other party isn't upholding their end of the bargain, serving a notice of violation is the first formal step toward resolving the issue. The note, which is usually in the form of a letter (and is often referred to as a "demand letter"), explains why you think there has been a violation (a failure to perform under the contract) of the contract (that is, what the other party did or didn't do) and sets out the next steps, either to repair ("cure") the issues or to terminate the contract and pay for the harm. Some notifications are very comprehensive, setting out a step-by-step plan and timetable for putting things right. Other notifications are more general, acting mainly as an invitation to discuss the situation.

What to Include in a Breach Notice?

When submitting a notice of violation in a contract dispute, here's what you should include.

  1. Make the data as clear as possible. One of the notice's most critical functions is to keep track of the date on which the breaching party is formally informed of the violation. If the case goes to arbitration, the date may be crucial. Before submitting the note, the non-breaching party can double-check that it is being sent to the correct individual and using the correct form.

  2. Examine the notice provision. Contracts also include a clause, known as a notice provision, that specifies each party's contact information and how notices should be communicated. Notices may need to be sent by email, fax, or overnight mail, for example. Failure to obey these procedures could jeopardize all parties' rights.

  3. Describe the security breach. The breach of contract must be specified in the notice. A contract violation or failure to perform normally comes in one of three flavors:

    1. The other side did not fulfill its obligations

    2. The other party has stated that it can no longer fulfill its obligations.

    3. The other party has made it difficult for you to fulfill your contractual obligations.

  4. Make sure the violation is "material". You may give notice for any form of violation, but courts are more concerned with "material" violations or acts by the other party that reduce the contract's value. Although you can provide notice of a "non-material" violation (also known as a "partial breach" or "immaterial breach"), it normally does not result in the agreement being terminated.

  5. Suggest a solution. It could be too late to remedy the issue in some situations. If this is the case, the notice acts as a notice of termination (cancellation) of the arrangement as well as a demand for damages. A breach of a contract notice, on the other hand, is often used to settle contractual issues while holding the agreement in force. As a result, the breaching party is also given a period of time to correct the violation in the letter. Most contracts have a clause defining the cure duration, which is usually 30 days. Even if it seems that providing a cure time is pointless, it might be in your best interests. The other party may be unaware of the issue or may have experienced temporary setbacks that make contract enforcement difficult.

  6. Make an effort to figure it out. You should try to resolve the issues informally before sending the note, or maybe at the same time. This will save you time, money, and possibly your business relationship. Don't use the notice merely as a business tactic to bully the other party.

Finally, if you and the other party wish to mutually terminate (or "discharge") the relationship, you can do so by signing a separate contract termination agreement. A mutual rescission arrangement is often used to do this. However, whether either or both parties have already fulfilled any of the contract's terms.

Potential Remedies in the Event of a Contract Breach

When a contract is broken, the non-breaching party may be entitled to remedies and damages as a result of the breach. The following is a list of some of the potential solutions for a breach of contract claim:

  • Financial Losses - The non-breaching party could be compensated financially for the losses they suffered as a result of the violation. In this case, the person that violated the agreement would be held liable for any damages incurred as a result of the infringement.

  • Specific Performance - The best solution in certain cases is for the violating party to perform his or her duties under the contract or arrangement, which is known as Specific Performance. Where monetary damages are insufficient to fully compensate the non-breaching party, specific performance remedies are appropriate. It is critical to consult with an experienced Business Law Attorney to determine the likelihood of achieving Specific Performance.

  • Rescission - Non-breaching parties would have the legal right to be excluded from the contractual arrangement or contract by rescinding it. It is important to consult with an experienced solicitor to determine the likelihood of obtaining a contract or arrangement rescission.

  • Damages from Liquidation - It can be difficult to assess the damages incurred by a breach of contract depending on the form of the contract. Many contracts would have a liquidated damage clause in order to address this problem. In the case of a violation, this provision will give the non-breaching party a fixed amount of monetary compensation. Since these clauses may be unenforceable in some cases, it is important to consult with an experienced Business Law Attorney to determine the extent of the damages.

What Is the Process for Filing a Breach of Contract Lawsuit?

Since each contract is unique, each breach of contract case would be unique as well, which is why having an experienced Business Litigation Lawyer on your side is crucial. The following are the steps to bring a breach of contract case in general:

  • Consult with A Business Litigation Lawyer

    • If you find out you've been the unfortunate victim of a breach of contract, have incurred losses due to it, the first thing you can do is find a competent Business Law Attorney to help you recover your damages. A good Business Litigation Lawyer will inform you whether or not you have a case, when you should pursue it and in which venue or venues you should pursue it.

    • Some contracts, for example, have mediation or arbitration clauses that compel you and try to resolve your dispute through mediation or make binding arbitration the exclusive mode of dispute resolution. Some contracts may also include location clauses that enable the dispute to be resolved in a specific state or county. You can speak with as many lawyers as necessary before you find one that seems like a good match, so you can be sure you're dealing with the best legal talent available.

  • A formal complaint

    • Once you've agreed to work with a Business Litigation Lawyer, they'll file a formal complaint or, if allowed by contract, a motion for arbitration to start the case. The complaint will include a summons as well as the cause of action (in this case, breach of contract). The complaint would then be served on the defendant to inform them of the lawsuit.

  • Response

    • A defendant will have 30 days to answer from the date of service. They can either respond to the accusation, which will move the case forward, or they can appeal it, such as by filing a demurrer or motion to dismiss, which will include a hearing.

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  • A Hearing is Called

    • If the defendant objects to the allegation, a hearing must be held, which may take up to two months or longer. If a court upholds a demurrer to the lawsuit, the complainant will usually be granted leave to amend to correct the flaws. After that, a new lawsuit would be lodged within the time limit set by the court. This will proceed until either the defendant responds to the complaint or the complaint is dismissed.

  • The Investigation Procedures Begin

    • Your Business Litigation Lawyer will do the required analysis to collect facts about your case during the discovery process. To collect evidence to help develop the case against the defendant, they will use tactics such as requesting records, depositions, subpoenas, confessions, and interrogatory answers.

  • Setting up a Trial

    • After the discovery duration has been determined to be adequate, the court will hold a hearing to decide if the case is ready to proceed to trial. If that is the case, they will schedule the trial and include any final planning guidance.

  • Trial or Settlement Negotiations

    • Many lawsuits can be resolved before the trial date in a manner that is satisfactory to all parties, and the lawyers can negotiate a favorable result during this period. If no agreement can be made, the case will proceed to trial, where the judge will make the final decision.

How Long Would It Take to File a Breach of Contract Lawsuit?

The length of time it takes to settle your breach of contract dispute depends on a number of factors. The strength of each party's claim, your Business Law Attorney's experience, the court hearing the case, and other factors can all affect the amount of time you spend seeking damages. A simple breach of contract case that goes through mediation or arbitration can be settled in a matter of months. However, if legal action is taken, expect to wait at least 18 months to two years for a decision. In general, out-of-court settlements of breach of contract cases are completed far faster than those that go to trial, but this is contingent on finding a Business Law Attorney who can negotiate and find a reasonable resolution on your behalf.

What is the burden of proof in a breach of contract case?

Contractual conflicts are considered under civil rules of evidence, which are weaker than the criminal norm, in California and elsewhere. The presumption of proof refers to the weight of facts that must be established before a judge or jury can rule in favor of the plaintiff in a lawsuit. To be considered in criminal trials, the evidence must be beyond a reasonable doubt. In civil cases, however, the standard of evidence is reduced to demonstrating that the point is more probable than not right. The preponderance of the proof criterion is used in this case.

These things can be more difficult to prove in some cases than others, which is why consulting with an experienced Business Litigation Lawyer is critical to have your case heard and your damages recovered.

Statute of Limitations for Breach of Contract

Breach of contract cases in California, like all other forms of legal disputes, are subject to a statute of limitations—basically, a claim must be brought within a certain amount of time in order for it to be heard. A Business Law Attorney will help you navigate the complexities because every contract is different, but there are some general steps and guidelines that will help you remain informed.

The parties have a certain amount of time to file a lawsuit under California law. A party has four years from the contract's signing date to file a lawsuit for written contracts. The party will only have two years from the date of the agreement to enforce an oral contract. The legislative term for promissory notes is six years. Parties can write a shorter duration into their agreement in some cases.

Although this will sound like a long time, if you believe you have an argument, it is best not to let the clock run out on your conflict. Early consultation with a Business Law Attorney will help you decide whether and when you can file, allowing you to make an informed decision about how to proceed.

Contract Breach Defenses

You can raise as many legal protections as practicable in a contract dispute over a breach of contract, including "affirmative defenses." It's typically not enough to simply refute legal wrongdoing; you'll need to back up your claim with any reasonable argument you can think of. You could also be barred from raising defenses later if you don't lift them early in a breach of contract case. This article describes affirmative defenses and discusses the different types of legal defenses that can be used to respond to a breach of contract lawsuit.

Only your Business Litigation Lawyer's imagination limits how you interpret your legal defenses in a breach of contract case (and your ability to bankroll legal fees).

  • The agreement was meant to be written down.

    • If the other party claims that an oral arrangement should be enforced against you, you might be able to protect yourself by arguing that the form of contract is required by state law (known as the "Statute of Frauds").

  • The deal is for an indefinite period of time.

    • You could be able to argue that the contract is indefinite if the basic terms were never agreed upon. This indicates that either the parties did not consider the agreement to be binding or that a court would be unable to distinguish the basics, even if only implicitly. Although courts will always require the parties to act in good faith to reach an agreement, agreements to consent (such as letters of intent or agreements in principle) are generally considered indefinite and thus unenforceable.

  • A mistake has arisen.

    • You will protect yourself by demonstrating that an important fact in the contract was misunderstood by all parties. When referring to a party's error in judgment, you cannot use this defense.

  • You didn't have the ability to contract.

    • It's possible that the contract will be voided. In the case of minors and others who are mentally ill, this defense is most likely to succeed.

  • You were persuaded to sign a contract under false pretenses.

    • A contract is void if it was caused through deception, duress ("Sign this or we'll take your cat"), or the undue interference of a trusted individual (your real estate agent advised you to buy because they secretly get a kickback from the seller).

  • The contract is a perversion of justice.

    • If a contract is grossly unjust, it will not be enforced. This almost always happens when bargaining power is severely skewed (as in a contract of adhesion), and the stronger party takes advantage by imposing unfair conditions, provisions, or waivers on the weaker party.

  • Rescission.

    • If one party says things that are excusing a failure of the contract and then the other party depends on it, the first party could be barred from later rejecting the statement and alleging a violation. For example, if a bank president proceeds to call a homeowner and promises that the bank will not foreclose for six months so that the homeowner may sell the house, the bank will be held to its word.

  • The contract is unenforceable.

    • If the object of the contract, or the item that was bargained for, is unconstitutional, the contract is unenforceable. Contracts that may implicitly aid criminal activities may be implemented in certain cases. A court can often separate the unconstitutional portion of a contract from the rest of the agreement, making the rest of the contract enforceable.

Consider one of our prescreened California Lawyers in your California Attorney Search.

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