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What You Need to Know About Los Angeles Breach of Contract Claims

Updated: Sep 28

What Does A Breach Of Contract Mean For Your Business in Los Angeles, California?


If someone breaches a contract or accuses you of violating the terms of an agreement, a Los Angeles Business Attorney is ready to assess your situation and take strong action to preserve your rights.

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Contractual relationships are developed every day with business partners and associates, clients, consumers, vendors, service providers, product manufacturers and distributors, and a plethora of other people and businesses. Most, if not all, organizations rely significantly on a critical basic building block: a contract. When a breach of contract occurs in this building block, the entire corporate structure suffers, resulting in major financial consequences.

The formal elements of a contract have been established in California for a long time. California Civil Code 1550 was passed by the State Legislature in 1872. The following are the basic parts of a contract, according to Section 1550:

  • Those who are legally able to enter into a contract (legal capacity)

  • The parties have agreed to form a contract (there is an offer and an acceptance of that offer)

  • There is a "lawful object" to the contract (a legal purpose)

  • There is enough thought put into it.

Capacity to Contract Means


Parties must have the "legal ability" to engage in a contractual agreement in order to form a legitimate and enforceable contract. The idea of "capacity" refers to whether or not a person has the ability to comprehend and accept the conditions of a contract, as well as whether or not the person is legally permitted to do so. In general, children, persons of "unsound mind," and organizations that are not in "good standing" will be judged to lack legal capacity for contract formation purposes. Without the help of a Business Attorney in Los Angeles, matters surrounding legal capacity can get complicated.

Minors

Based on California Civil Code 1556, it is well-established that children are not "capable of contracting." Anyone under the age of 18 is considered a minor. A minor lacks the legal competence to enter into a contract and be bound by it. This regulation is justified by the fact that minors are incapable of comprehending contractual agreements, as well as their rights and obligations under those conditions.

Contracts involving minors are considered "voidable." Even if a juvenile's parent or guardian signs it, the contract isn't binding on the minor. This is a "one-way regulation" in terms of the ability to enforce contracts with minors. In other words, a minor retains the perfect right to sue the other party and enforce the contract's terms.

There are only a few exceptions to this rule, and the majority of them are found in California Family Code Sections 6700 et seq. Contracts with minors, for example, are not voidable simply because one of the parties was a minor at the time of the contract's formation:

People who have an "unsound mind"


Individuals of "unsound mind," including minors, are unable to enter into a binding contract under California Civil Code 1556. The basis for this law is that people who are mentally or intellectually disabled are unable to comprehend contractual words, rights, or duties.

The California Civil Code 39(b) establishes a rebuttable presumption that an individual is of "unsound mind" if that individual is unable to:

  • Organize your financial resources

  • Defend yourself against fraud.

  • Refuse to be swayed by outside forces.

However, a person's participation in a few "isolated occurrences" of lack of foresight or reckless behavior isn't enough to trigger the "unsound mind" inference. According to California Civil Code 38, someone who is "completely without understanding" does not have the legal authority to engage in a contract. Nonetheless, under section 39, the person "without understanding" is nevertheless accountable for paying for the "fair value" of those things provided for this person's or his or her family's maintenance.

Corporations That are Not in "Good Standing"


When a corporation's status is suspended, it loses its ability to enter into legally binding and enforceable contracts. If a corporation fails to pay taxes owed to the California Franchise Tax Board, its "corporate powers, rights, and privileges" may be suspended [if the company is based in California] or even fully forfeited [if the company is based elsewhere]. 23301. Revenue and Taxation Code of California Any contract entered into by a company during the suspension or forfeiture of its rights, powers, or privileges is "voidable" at the request of the other party to the contract. 23304.1 of the California Revenue and Taxation Code (a).

The conditions of a contract must be agreed upon by both parties. There must be both an "offer" and an "acceptance" of that offer.

Making Offers

The following are the components of a good "offer":

  • The party making the offer (the "offeror") must notify the "offeree") of the offeror's readiness to enter into a contract under specific conditions.

  • Specific, distinct, and explicit terms must be included in the proposed contract. The condition of "mutual consent" for the formation of an enforceable contract is well-established. In other words, the contracting parties must agree on the same item, and the agreed-upon "thing" must have the same meaning for all parties.

  • The offeree may have reasonably concluded, based on the provided facts, that accepting the offer with the proposed terms would result in a contract.


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Acceptance


In California, a party's "acceptance" of an offer must meet the following criteria in order for the contract to be enforceable:

  • The individual who receives an offer must agree to all of the proposed offer's terms. All suggested terms must be accepted precisely, exactly, and unequivocally in order for an acceptance to be acceptable.

  • It is not a genuine "acceptance" if the offeree accepted only a few of the offer's terms or if the offeree requested new or additional terms. The original offer is terminated, and a "counteroffer" is created as a result of such a "qualified acceptance."

  • The offeree's agreement to accept all of the contract's proposed terms must be notified to the offeror.

Revocation


The offeror has the legal right to revoke an offer at any moment before it is accepted. To put it another way, the person who made the offer has the right to say, "I've changed my mind, and the offer is no longer valid." An offer, on the other hand, can only be canceled before it is accepted. If the offeror accepts the conditions of the offer, an enforceable contract is formed, and the offeror is obligated by the contract's terms. It is too late to revoke the offer in these instances.

Rejection


This act automatically terminates the offer if the person that received the offer [offeree] communicates that the offer is rejected. In other words, an offer that has been refused cannot be accepted at a later date.


A legal purpose for a contract is required


Another crucial feature of any contract is that it must have a "lawful object," which is another way of stating "legal purpose." It indicates that the subject matter of a contract must be legal in order for it to be enforceable. A contract entered into to engage in criminal behavior (for example, fraudulent activities) will not be enforceable in court.

Consideration


Mutual "consideration" is one of the most important aspects of a contract. A contract cannot be enforced if there is no consideration. To put it another way, each party to a contract must give up something valuable in return for something else valuable.

A valid consideration can be presented in a variety of ways, including:

  • Money (cash, credit card payments, bank transfers, etc.)

  • Personal property (collectibles, automobiles, motorcycles, boats, furniture, etc.)

  • Real estate (residential and commercial real estate)

  • Services (e.g., car repair or gardening service)

  • A commitment to refrain from doing something that a party has the legal authority to do.

Contracting parties have a lot of flexibility when it comes to negotiating. Although a reciprocal consideration does not have to involve an exact or equal exchange of value, it must be of "reasonable value."


The courts will recognize and enforce a person's willingness to sell an asset for less than its market value. Courts, on the other hand, are wary of wholly "one-sided" agreements. Consideration of such insignificant value that it has no value at all is unlikely to result in a legally enforceable contract.

A lack of attention can occur in a variety of situations, in addition to nominal consideration:

  • transfers that are both gratuitous and voluntary (gifts)

  • established legal responsibilities

  • moral obligation and past performance

  • promises that aren't fulfilled

For any confusion on the matter, you can consult a Los Angeles Business Lawyer for more of specific details.


Different Types of Contracts


All contracts are divided into two categories: express contracts and implied contracts. The parties' actual words, whether spoken or written, indicate the existence of express contracts. As a result, both oral and written contracts might be classified as explicit contracts.


Implied contracts are formed when the parties' conduct and activities are evaluated in the context of the surrounding circumstances and do not entail any vocal or written agreements.


Oral Contracts


Oral contracts in California can be legally legitimate and enforceable. Oral contracts must meet all of the above-mentioned elements, including legal ability, offer and acceptance, a legal purpose, and consideration, in order to be enforceable.

Parties can, in theory, enter into oral contracts to engage in a variety of commercial and business transactions. Verbal agreements, in actuality, are laden with dangers and complications. The conditions of the agreement will never become a "problem" if everything goes well and the parties do not have any conflicts or arguments.

However, without a formal agreement, it is extremely difficult to show the terms of an oral contract, or even that the oral contract occurred in the first place, in the event of a dispute between the parties.


As a result, the ideal practice is to always memorialize the terms of an agreement in writing and avoid "handshake deals" as much as possible, particularly in business partnerships and agreements involving large sums of money as well as valuable items and services. Furthermore, as explained below, some agreements are subject to the "statute of frauds" and are not enforceable unless they are in writing.