Morris & Stone -- Southern California's Premier Civil Litigation Firm

Suffered a breach of contract, or are you being falsely accused of breaching a contract?  We bring the knowledge and methods necessary to quickly resolve breach of contract matters and any other business litigation matters throughout Orange County and Southern California.  We are results-oriented, with a constant eye on the bottom line.  Our cutting-edge technology and techniques allow us to bring you the highest quality legal services, usually at a fraction of the cost charged by other firms.  Call now for a no-cost consultation at (714) 954-0700.

 

What is required to create a contract?

Most people know when they have a contract, but not always.  For there to be a contract, there must be an offer and acceptance, and meeting of the minds.  You can't pick a point in the negotiation process and claim that there was a breach of contract if a contract was never formed.

This concept is illustrated by a common fact pattern that often arises in the real estate context.  Buyer offers to buy a home for $750,000.  Seller counters with $800,000.  Buyer responds by accepting the $800,000 offer, but only if he gets to keep the plasma television.  Seller doesn't respond, so Buyer immediately accepts the $800,000 price.  Buyer later learns that after he "accepted" the offer, the Seller sold the property for $850,000.  He calls an attorney wanting to sue to force the seller to sell the house to him for $800,000, or to recovery the $50,000 since the seller sold "his" house

If he sues he won't win, because there was never a contract.  Every counter offer serves as both a REJECTION of the prior offer, and a new offer.  When the Buyer "accepted" the $800,000 price but added the plasma television as a condition, that was a new offer for the Seller to accept or reject.  An offer cannot be accepted by silence.  When the buyer then went back with his offer to buy for $800,000, that was then a new offer even though the Seller had previously offered to accept that price.  The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly, without modifications.  However, a mere request for information is not a counter-offer.  In our hypothetical, for example, the buyer could have responded, "I hereby accept your offer to buy the property for $800,000.  Would you consider including the plasma if I pay the cost of inspection?"  That would not be considered a counter-offer.  However, in the hypothetical, seller never breached the contract, because there never was a contract. 

What is an "Offer"?

An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the "offeree".  The "expression" referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract.

What is a "revocation of offer"?

An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror.

What is "Acceptance"?

Acceptance is a final and unqualified expression of assent to the terms of an offer.  It is no defense to an action based on a contract for the defendant to claim that he never intended to be bound by the agreement if under all the circumstances it is shown at trial that his conduct was such that it communicated to the other party or parties that the defendant had in fact agreed. Signing of a contract is one way a party may show his assent. Alternatively, an offer consisting of a promise to pay someone if the latter performs certain acts which the latter would not otherwise do (such as paint a house) may be accepted by the requested conduct instead of a promise to do the act. The performance of the requested act indicates objectively the party's assent to the terms of the offer.

Prior to acceptance, an offer may be withdrawn.  An offer can only be accepted by the offeree, that is, the person to whom the offer is made.  An offeree is not bound if another person accepts the offer on his behalf without his authorization.  It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance. If the offer specifies a method of acceptance (such as by post or fax), that method must be used. Silence cannot be construed as acceptance.

Often when two companies deal with each other in the course of business, they will use standard form contracts. Often these terms conflict (i.e., both parties include a liability waiver in their form) and yet offer and acceptance are achieved forming a binding contract. The battle of the forms refers to the resulting legal dispute of these circumstances, wherein both parties recognize that an enforceable contract exists, however they are divided as to whose terms govern that contract.

Under the Uniform Commercial Code (UCC) Sec. 2-207(1), a definite expression of acceptance or a written confirmation of an informal agreement may constitute a valid acceptance even if it states terms additional to or different from the offer or informal agreement.  The additional or different terms are treated as proposals for addition into the contract under UCC Sec. 2-207(2).  Between merchants, such terms become part of the contract unless: a) the offer expressly limits acceptance to the terms of the offer, b) material alteration of the contract results, c) notification of objection to the additional/different terms are given in a reasonable time after notice of them is received.

What is a Breach of Contract?

Most contract breaches are easily identified and require no definition.  But sometimes you have a breach of contract that is not worth pursuing.  You need to determine whether the breach was material and caused damages.

Say, for example, you hire a contractor to paint the outside of your office building.  The contract provides that the job will be completed by June 1, but does not provide for any penalties (usually called "liquidated damages").  June 1 comes and goes and the job is not completed.  You call the painting company and complain, send a letter or two, and finally the painters show up and the job is finished on June 9.  Clearly there has been a breach of contract, but was it material, and did it cause damages?

In terms of damages, did the eight day delay keep you from renting office space?  Did it prevent you from using any portion of the building?  You may have been frustrated by the delay, but did it really cost you any money?  You see, a breach of contract does not always mean that you can or should sue. 

The Restatement (Second) of Contracts lists the following criteria to determine whether a specific failure constitutes a breach:

In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

American Law Institute, Restatement (Second) of Contracts § 241 (1981)

What is a minor breach?

A minor breach, a partial breach or an immaterial breach, occurs when the non-breaching party is not entitled to an order for performance of its obligations, but only to collect the actual amount of their damages.  For example, suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which will ultimately be sealed behind the walls, be red. The contractor instead uses blue pipes that function just as well.  Although the contractor breached the literal terms of the contract, the homeowner can only recover the amount of his damages.  Since no damages were inflicted, the homeowner receives nothing.

What is a material breach?

A material breach is any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach.  If the contractor in the above example had been instructed to use copper pipes, and instead used iron pipes which would not last as long as the copper pipes would have, the homeowner can recover the cost of actually correcting the breach - taking out the iron pipes and replacing them with copper pipes.

The Restatement (Second) of Contracts lists the following criteria to determine whether a specific failure constitutes a breach:

"In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing."

American Law Institute, Restatement (Second) of Contracts § 241 (1981)

What is an anticipatory breach?

A breach by anticipatory repudiation (or simply anticipatory breach) is an unequivocal indication that the party will not perform when performance is due, or a situation in which future non-performance is inevitable. An anticipatory breach gives the non-breaching party the option to treat such a breach as immediate, and, if repudiatory, to terminate the contract and sue for damages (without waiting for the breach to actually take place).

What remedies are available for a breach of contract? 

The judicial remedy for breach of contract is monetary damages.  Where the failure to perform cannot be adequately redressed by money damage, the court may enter an equity decree awarding an injunction or specific performance.  The aggrieved person has a duty to mitigate or reduce damages by reasonable means.  Liquidated Damages may be limited to a specific amount.  In the United States, punitive damages are generally not awarded for breach of contract, but may be awarded for other causes of action in a lawsuit.

If the breach of contract was flagrant, can I sue for fraud?

Many have the understanding that a breach of contract action can somehow morph into a fraud action if the breach was intentional or caused great harm.  For example, we often get calls from people who have loaned money to someone, who stops making payments after a few months.  The person is very upset because they were depending on the payments, and now because of the loan they are missing their own payments and suffering late fees and damaged credit.  They proclaim that they want to sue for fraud and punitive damages.  

Breach of contract and fraud are completely different causes of action and normally occur at different times.  To prevail on a breach of contract cause of action, you basically need only prove that you performed under the agreement, but the other side failed to do so.  For fraud, you must show that the defendant (1) made a misrepresentation, (2) knowing it was false, (3) intending that you rely on the misrepresentation, and that (4) you justifiably relied on that misrepresentation, (5) to your detriment.  Thus, if the defendant took the loan fully intending to pay it back, that is not fraud.  Stated another way, fraud must take place before you loan the money, breach of contract occurs when the money is not paid back. 

That is not to say both cannot occur.  If the defendant took the money knowing he could not pay it back, that is fraud.  And when he later fails to repay