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Contract Enforcement in California

April 07, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law

Contract Enforcement in California

Business couldn’t be conducted and businesses couldn’t exist without contracts of one kind or another. A contract is a binding agreement between parties for an exchange of things or services. It can be an exchange of money for a product or service or the payment of money from one party in exchange for another party to do or not do something.

For a legal action to be successful, the person filing the lawsuit would have to prove,

  1. There is a legally binding contract.

Oral: An oral contract is enforceable in California, but they can be difficult (if not impossible, depending on the circumstances) to prove. Since there’s nothing written down, the party being sued could deny there was such a contract or the terms were not as the plaintiff claims. Trying to enforce an oral contract will require the introduction of other evidence, such as documents, e-mails or witnesses to show the contract and its terms are as the plaintiff claims. To recover on a claim for a breach of an oral contract, you have two years to sue from the time of the breach (statute of limitations).

Written: The more formal the written contract, the easier it would be to prove. If a contract is signed and witnessed, it may be hard to refute its existence. It should contain all the material terms of the agreement and show that both parties exchanged something of value. A party has four years from the breach to bring a legal action to court to enforce it.

Implied: Neither written nor oral, this contract (or quasi contract) is based on the conduct of the parties. A party knowingly accepts a benefit from another party in circumstances where the benefit is not a “gift” under the law (if it was a gift, there’s no need for any reciprocal action). Under the circumstances, the party accepting the benefit is under a legal obligation to give fair value for the benefit received. As you can guess, this is the most difficult type of contract to enforce. There is a two year statute of limitations for these types of contracts.

  1. The contract was breached.

The plaintiff needs to show the other party broke the contract, through no fault of its own. You cannot breach the contract (unless you had a valid excuse, like your performance was impossible) then complain the other party breached it. The breach needs to be material, not some inconsequential, technical breaking of the contract.

  1. You suffered an economic harm as a result.

You must show some type of damages to have a valid legal claim. If those damages are minimal, it probably won’t be worth filing a lawsuit. The terms of the contract should spell out what kinds of damages there would be in case of a breach (like attorney’s fees for the successful party). You could also ask the court to enforce the contract, a legal order requiring the other party to follow the contract.

A contract is not as sacred as some may want it to be. If conditions have changed, or the terms of the contract turn out to be a really bad deal for one party, a business could make the conscious (and depending on the circumstances, sensible) decision to simply not comply with the contract, as long as the party has a valid legal defense to a breach of contract claim, is willing and able to compensate the other party for the breach or willing to re-negotiate another contract. If this is your situation, consulting with an attorney is important to help you determine how you should proceed.

If you have any questions about contracts, whether you want one drafted, enforced or you think you may want, or need, to breach an existing contract, contact my office so we can discuss your situation and the next steps you should take.