Breach of Contract

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Breach of Contract

Any party to a contract, or even a third-party beneficiary, can bring an action in court to enforce a contract.

To establish that a contract has been breached, the plaintiff must demonstrate that a contract existed, that the plaintiff performed all of the significant things the contract required (or was excused from having to), that the defendant failed to do something the contract required, that the plaintiff was harmed, and that the defendant's contractual breach was a substantial factor in causing the harm. Even if a breach is established, certain defenses will allow a defendant to avoid liability.

Rarely is breach of contract litigation clear and simple. The contractual duties are often disputed, as well as conditions that trigger those duties, and parties sometimes have viable defenses to a breach. This is especially true when the parties proceeded on an oral contract, since memories can differ on what was agreed to.

Arbitration

Arbitration laws exist under both state law and federal law. As a threshold matter, the very first thing that should be investigated in a contract dispute is whether the contract has an arbitration clause. Arbitration clauses are common in contracts and require any dispute to be submitted to a neutral third-party. The third-party, often an experienced attorney or retired judge, is the arbitrator and takes the place of the court. Discovery is more limited in arbitration than in a court proceeding, which disadvantages the party with fewer records (often the plaintiff). For this reason, arbitration provisions are usually added to a contract by the party who is most likely to be a defendant.

Unconscionable Arbitration Agreements

An arbitration clause is not always enforceable. Multiple court opinions over the years have established a framework where arbitration clauses can be held unenforceable due to being unconscionable. Unconscionability has both a procedural and a substantive element.

Procedural unconscionability addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. This element is generally established by showing the agreement is a contract of adhesion (i.e., a standardized contract which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it). Adhesion contracts are subject to scrutiny because they are not the result of freedom or equality of bargaining. However, they remain valid and enforceable unless the resisting party can also show that one or more of the contract’s terms is substantively unconscionable or otherwise invalid.

Substantive unconscionability looks beyond the circumstances of contract formation and considers the fairness of an agreement’s actual terms, focusing on whether the contract will create unfair or one-sided results. Substantively unconscionable contractual clauses reallocate risks in an objectively unreasonable or unexpected manner.

Both procedural and substantive elements must be present to conclude an arbitration clause is unconscionable, but these required elements need not be present to the same degree. Courts apply a sliding scale analysis under which the more substantively oppressive a term, the less evidence of procedural unconscionability is required to come to the conclusion that the arbitration clause is unenforceable, and vice versa.

Statute of Limitations

Perhaps the most important question in any breach of contract case is: how long ago did the breach occur? Most cases for breach of a written contract must be brought within four years. For contracts that are not in writing, the case must generally be brought within two years. However, in general, California courts have permitted contracting parties to modify the length of the otherwise applicable California statute of limitations, whether the contract has extended or shortened the limitations period. A choice-of-law provision in a contract can alter the statute of limitations, so it is always prudent to identify whether the contract is under California law or the laws of another jurisdiction.

Limited and Unlimited Civil Cases

Breach of contract cases valued at $35,000 or less are limited civil cases. Any higher amount in controversy is an unlimited civil case. The amount in controversy is important, as the type of case filed directly affects filing fees, discovery, and appellate review. It is important to ensure you are filing the correct type of action.

Small Claims Court Cases

Small claims court is another way to resolve some lower-valued disputes. With some exceptions, cases with an amount in dispute of $6,250 or less are eligible for small claims court. The amount is increased to $12,500 if the action is brought by a natural person. This is sometimes a better option than bringing a limited civil case, although you are not allowed to have an attorney represent you at the small claims court trial. However, you are allowed to be represented by counsel in a small claims court appeal.

Attorney Fees

Under the American rule, each party to a lawsuit pays their own attorney fees. California follows the American rule, unless a statute or contract provides otherwise. This means the losing party does not pay the prevailing party to cover attorney fees. People are allowed to contract out of the American rule, and frequently do. Many contracts contain a provision that the prevailing party in a lawsuit is entitled to their reasonable attorney fees. This is one of the first items that should be checked in any dispute, as the attorney fees could quickly dwarf the amount in controversy.

Assistance

Contact me today if you are facing a breach of contract lawsuit. I can bring the lawsuit for you if you are the plaintiff, or defend you in the suit if you are the defendant.