Contract disputes are among the most common — and most consequential — matters in California business litigation. Whether you are seeking to enforce a contract, defend against a breach claim, or navigate a dispute over contract interpretation, the strategic decisions made early in the litigation can determine the outcome.
Before Filing: Assess Your Position Honestly
The first strategic decision in any contract dispute is whether to litigate at all. Litigation is expensive, time-consuming, and uncertain. Before filing suit, a party should carefully evaluate: the strength of its legal position, the collectability of any judgment, the cost of litigation relative to the amount in dispute, and whether alternative dispute resolution — mediation or arbitration — might produce a faster and less costly resolution.
If the contract contains a mandatory arbitration clause, the parties may be required to arbitrate rather than litigate in court. Arbitration can be faster and more confidential than court proceedings, but it also has limitations — including limited discovery and limited grounds for appeal. Understanding the forum in which the dispute will be resolved is essential to developing the right strategy.
The Elements of a Breach of Contract Claim
In California, a plaintiff asserting breach of contract must prove four elements: (1) the existence of a contract; (2) the plaintiff's performance or excuse for nonperformance; (3) the defendant's breach; and (4) resulting damages. Each element must be supported by evidence, and defendants will typically contest one or more of them.
Common defenses to breach of contract claims include: failure of consideration, impossibility or impracticability of performance, frustration of purpose, waiver, estoppel, and the statute of limitations. Identifying the strongest defenses early — and building the evidentiary record to support them — is essential for defendants.
Contract Interpretation Disputes
Many contract disputes turn not on whether a breach occurred, but on what the contract actually required. California courts apply the "plain meaning" rule as a starting point, but extrinsic evidence — including the parties' course of dealing, industry custom, and pre-contract negotiations — may be admissible to explain or interpret ambiguous contract terms.
When contract language is ambiguous, the dispute often becomes a battle of competing interpretations, each supported by different extrinsic evidence. Anticipating the other side's interpretation and developing evidence to rebut it is a critical part of case preparation.
Damages in Contract Cases
California contract law generally limits recovery to expectation damages — the amount needed to put the non-breaching party in the position it would have been in had the contract been performed. Consequential damages are recoverable if they were foreseeable at the time the contract was formed. Punitive damages are generally not available in breach of contract cases, though they may be available if the breach also constitutes a tort (such as fraud).
Proving damages with reasonable certainty is often the most challenging aspect of a contract case. Courts will not award speculative damages, and defendants frequently argue that the plaintiff's losses were caused by factors other than the breach. Expert testimony is often necessary to establish and quantify damages.
The Importance of Early Case Assessment
In our experience, the most important strategic decisions in contract litigation are made in the first few weeks of a case — before the complaint is filed or the answer is served. Early case assessment, thorough document review, and honest evaluation of the strengths and weaknesses of the case are essential to developing a winning strategy. At Tajima LLP, we bring that discipline to every contract dispute we handle.