Oral, Written, or Implied?
In California, oral agreements are as enforceable as written ones, although they are more difficult to prove, and there may be doubt about what was agreed. In California, you have 4 years from the date of breach to sue on a written contract, but only 2 years on an oral or implied one. An implied-in-fact contract, or quasi-contract, arises from the parties’ conduct.
Without a contract in writing, you have to prove the contract and the breach through oral testimony, other witnesses to the deal, if there are any, receipts, confirming emails, texts, or other correspondence mentioning your deal, etc. People’s memories can be notoriously self-serving and unreliable, and people can disappear, so it’s always best to confirm the specifics of all the important terms – WHO, WHAT, WHEN, HOW, WHAT HAPPENS IF THERE’S A BREACH – in a written agreement signed by the parties. The rule of thumb is, if it’s an important part of the deal, include it in the contract. Don’t expect anyone to remember or honor a deal point years after you discussed it. Get it in writing!
What’s a Breach?
The elements of a breach of contract claim are:
- the contract;
- plaintiff’s performance or excuse for nonperformance;
- defendant’s breach; and
- damage to the plaintiff
You cannot be in breach yourself while claiming that the other party breached, unless your performance was made impossible by the defendant. Not every hyper-technical lapse is a breach; whether or not a breach is “material” enough to be actionable depends on the facts. Similarly, the “no harm, no foul” rule generally applies, so you must actually be damaged to make a valid claim.
Sometimes the parties can be excused from performing. When there’s a “force majeure” event, such as a labor strike, a flood, or a global pandemic like coronavirus, the contract can provide that either party, or both parties, are relieved of their contractual obligations.
The legal fees clause: A powerful weapon
In some states, attorneys’ fees spent in enforcing your contract rights are automatically recoverable. Not so in California, where you automatically recover only some of your court costs, but not your lawyer’s fees. Since lawyers are expensive, including an attorney’s fee clause that shifts expenses to the losing party in a dispute gives a litigant significant leverage, because the party on the wrong end of that clause has much more to lose if they lose the dispute.
Not only does a legal fees clause provide a strong disincentive to the other party to perform as agreed, but if that other party DOES breach, they will fear litigation because they’re on the hook for your lawyer’s fees as well as those of their own lawyer. This kind of clause also makes it easier for you to retain a lawyer.
Include in your contract that the parties agree that, if there’s a dispute, the winning party is awarded their legal fees and costs actually incurred. If most of the “executory” things in your contract are the other party’s – meaning, they’re the one that has most of the obligations to perform – you may be justifiably confident that you won’t be the one breaching. In that case, try to get language covering the prevailing party’s ACTUAL fees and costs incurred, not just REASONABLE fees and costs. That way, the judge awarding fees and costs to the prevailing party can’t exercise their discretion to reduce the number of hours or the hourly rate of incurred attorney’s fees. Again, this provides the other party with motivation not to breach, and if they do breach and litigation ensues, they have a good reason to avoid increasing litigation costs by using aggressive and/or evasive tactics.
Alternate Dispute Resolution, or ADR, Can Be Cheaper, Quicker, and Easier Than Litigation in Court
A breached contract doesn’t have to mean suing in court. Most disputes settle, and shortcuts to settlement include mediation and arbitration, which can both serve to educate the parties about the strengths and weaknesses of their claims and speed up resolution. A speedier resolution is a less costly resolution. So add this dispute-resolution requirement to your contract to ensure the parties use it.
Mediation and arbitration are private, taking place in an office rather than in a courthouse. In that sense, they’re at least superficially more friendly than court litigation, but they’re really not less adversarial. Mediation and arbitration can be binding or non-binding. If you want a quicker resolution and are willing to take the chance that your mediator or arbitrator is competent, opt for binding arbitration, with no right of appeal. If you’re less sure, choose a non-binding procedure and be prepared to go through more than one if a party doesn’t like the result of the first.
Mediation is often seen as a friendlier process, most appropriate for ongoing relationships, such as ongoing contracts the parties wish to preserve, family disputes, neighbor disputes, and similar situations. In contrast, arbitration is generally used for disputes that contemplate ending the relationship.