By: Roger J. Buffington, Esq.
Breach of contract litigation is a common type of litigation in which one party alleges that the other party violated the terms of an enforceable contract between the parties, leading to causation of damages to the plaintiff. One of the usual defining characteristics of most of these suits is, of course, the existence of an actual written document between the parties. While some contracts may be oral (and his invokes a host of issues including the Statute of Frauds, which can render many oral contracts unenforceable) in practice most of these suits involve a written contract. This stands in sharp contrast to many other types of lawsuits in which oral testimony is at the centerpiece of the evidence — often leading to a “he said, she said” type of dispute. In most breach of contract lawsuits there is a written contract. This fact is often more important than it appears. Juries, and even judges, place great weight upon “the written word” and what is written in the contract is likely to carry a lot more weight than disputes over who said what, or even who did what. At trial the written terms of the contract are almost always going to frame the lawsuit, at least initially. This would, at first consideration, appear to simplify many breach of contract lawsuit.
But not always. There can be many pitfalls to a written contract that were not always obvious to the parties at the time that they agreed to and did enter into the written contract. In this article we will briefly discuss a few of them.
- Errors as to the identity of the parties. One might expect that this could not occur, but in fact it often does. A well-drafted contract makes it clear who the parties entering into the contract are, but it is surprising how often this rather fundamental matter can get fouled up. For example, sometimes two sides want to enter into a contract. One of the sides is in the process of forming a corporation or an LLC, and enters into the contract in the name of this anticipated future entity. Then, unexpectedly, the new entity does not get formed for whatever reason and no one remembers to correct or reform the contract to reflect the actual parties. Quite a while later, if and when one side wants to sue for breach of contract, the contract is discovered to have been misdrafted as to who one of the parties is. This happens more often than one might think. There are many other ways that it can happen.
- Hostile venue provisions. One of the most common pitfalls of breach of contract lawsuits is a hostile venue provision. The venue for a breach of contract action in California is determined by several factors, as outlined in the California Code of Civil Procedure and relevant case law. Under California Code of Civil Procedure § 395. the proper venue is generally the county where the defendant resides, where the contract was entered into, or where the contract was to be performed, unless there is a special written agreement specifying otherwise. Additionally, if the defendant is a corporation, the action may also be brought in the county where the corporation’s principal place of business is located. [Cal Code Civ Proc § 395, Cal Code Civ Proc § 395.5]. The usual twist and hazard with respect to venue is when the contract specifies an unfamiliar and/or distant venue. This can mean that a plaintiff must sue a defendant in a distant state (or country!) despite the contract performance occurring in, and perhaps the contract having been entered into at, a much more convenient venue. Having to bring a breach of contract action in a distant and unfamiliar venue can introduce a great deal of complexity and expense into the lawsuit.
- Attorney’s fee provision. For most litigation, the “American Rule” prevails, which simply means that for most disputes in the United States the loser will not pay the winner’s attorney’s fees. However, an exception to this rule exists where the contract explicitly specifies that the loser will pay the winner’s attorney’s fees. A provision of this type can greatly increase the stakes in what might otherwise be a fairly straightforward breach of contract lawsuit. Not uncommonly, attorney’s fees claimed by the winning side will be, to put it politely, incredible in relation to the lawsuit itself. It is depressingly common for attorneys to be very creative (again, putting it politely) when claiming and enumerating attorney’s fees after winning a suit in which a fee provision applies. Often the parties paid little attention to this provision when they signed the contract, not expecting any disputes, and certainly not expecting to lose one. But it happens and when it does the results can be as disagreeable as they are unexpected. An attorney’s fee provision can change the entire dynamics and calculus of a lawsuit.
- Arbitration clause. Sometimes a contract will include an arbitration clause, requiring the parties to arbitrate a dispute over the contract rather than have it heard by the Superior Court. This greatly changes the nature of the dispute, and there are many pros and cons of arbitration. Very commonly some attorney or other slipped in an arbitration clause when drafting the contract and just as commonly the parties gave it little or no thought at the time, focusing instead on the operational obligations of the parties. However, arbitration greatly changes the cost structure and other factors of a breach of contract dispute.
- Cockeyed contract provisions from internet contracts. The internet has made it possible for laymen to search out, download, and enter into form contracts without recourse to a skilled attorney. Often these contracts are larded with legalistic language that gives such works an aura of professionalism and credibility. Not uncommonly, such contracts contain errors or even outright contradictory terms. Buffington Law Firm’s breach of contract attorneys have encountered situations in which someone got ahold of a stitched-together contract from the internet with a plethora of contradictory provisions. One example contained a provision whereby the loser paid the winner’s attorney’s fees, with another provision a few paragraphs further down providing just the opposite. Another example contained bizarre provisions pertaining to the loser paying the winner’s expert witness fees and other non-standard costs. This kind of errors can greatly complicate a lawsuit.
There are many other kinds of pitfalls in breach of contract lawsuits. These are simply a few of the more common ones. If you are involved in a breach of contract dispute, Buffington Law Firm’s breach of contract team invites you to contact our Firm for a free legal consultation. All consultations are with an experienced breach of contract trial attorney and are completely confidential and protected by the attorney-client privilege. And of course there is never any obligation.