IOVERVIEW

California's gross domestic product has surpassed that of India and the United Kingdom to become the fifth largest in the world. It is home to the world's leading technology sector in Silicon Valley and its premier entertainment capital in Hollywood. Given the volume and variety of economic activity in California, understanding its commercial laws has become increasingly important.

Each of the 50 states has its own court system and commercial laws, but most of these regimes grew out of the same legal tradition and have looked to each other for insights and guidance throughout their evolution. As a result, the substance of California contract law is generally consistent with that of New York and other major commercial centers in the U.S. One formal difference is that California has codified much of its contract law and related rules of evidence. Codification makes the rules less flexible but also more easily accessible and predictable. There are some notable substantive variations as well, which are highlighted in this chapter, but they are the exceptions to the general rule of consistency in commercial law across the United States.

II CONTRACT FORMATION

i Basic elements

A contract is nothing more than an agreement to exchange things of value. In California, an enforceable contract requires reasonably certain terms, mutual assent to those terms, and something of value for both parties.2 To be 'reasonably certain', a contract's terms must be sufficiently definite that they provide a basis for later determining whether the parties have complied with their obligations and what remedy they would expect for a breach.3 An enforceable agreement must also have a lawful purpose and both parties must have the legal capacity to enter into a contractual relationship – children generally cannot enter into binding agreements, for example.4

If an offer meets these requirements, it becomes a contract the moment it is accepted, provided the offeree accepts the terms without changes or preconditions.5 Acceptance does not have to be explicit. It can be communicated by beginning performance or by taking the consideration offered.6 Silence in the face of an offer is not acceptance unless there is a relationship between the parties that would indicate to a reasonable person that silence means acceptance.7 An offer may be revoked any time prior to acceptance, provided there was no binding agreement to leave the offer open for longer.8 An offeror can assign an expiration date to its offer, at which time the offer will automatically expire if not accepted.9 If no time period is specified, an offer will lapse after a 'reasonable time' an amount which varies based on the circumstances.10

Consideration is an essential element of any contract, but offering most any benefit, or agreeing to suffer most any prejudice, is generally enough.11 Although little is required, a recommitment to perform a preexisting obligation has no value and therefore cannot constitute consideration.12 Parties should be aware, however, that consideration can be so inadequate in comparison to the benefit received that it raises questions about whether the contract was obtained by fraud or duress and is therefore unenforceable. These issues are addressed elsewhere in this chapter.13

ii Oral contracts

California does not require that parties set down their agreement in writing except under specific circumstance identified in a rule known as the statute of frauds.14 While there are others, the primary circumstances in which the statute of frauds requires that an agreement be in writing is when an obligation is not intended to be performed within a year or within the promisor's lifetime, or when an agreement involves the sale of real property or an interest therein.15 Even when the statute of frauds requires that an agreement be in writing, emails and electronic signatures are sufficient.16

iii Modifications

Except in those circumstances where the statute of frauds applies, parties to a contract in California do not need a new written agreement to modify an existing one. It is enough that both parties perform in a manner that is consistent with the new understanding or that it is supported by additional consideration.17 However, if a contract has a term requiring that all modifications be made in writing, California will generally enforce it.18 But a court may also find that the parties' consistent divergence from the agreements' terms, without objection from either side, effectively modifies the agreement, notwithstanding a contractual provision forbidding oral modifications. For example, one California court addressed a provision in a written shareholder agreement requiring that shareholders approve all billing contracts in writing.19 According to the court, by repeatedly approving billing contracts orally, the shareholders 'orally amended' the agreement to allow 'oral approval'.20

III CONTRACT INTERPRETATION

Fundamentals of contract interpretation

California law requires that unambiguous contractual terms be applied as they are written.21 If, however, a contractual term is ambiguous, meaning it is capable of more than one reasonable interpretation, a California court will attempt to determine the parties' intent at the time they entered into the contract, taking into account the surrounding circumstances.22 The subjective state of mind of a party entering into a contract is generally irrelevant, however.23 What matters is what they said or did, and what those words or actions would lead a reasonable person to believe about their intentions.24

As an initial matter, the judge, not the jury, will decide whether a contract's terms are clear or need clarification.25 To make this determination, a California court may look to evidence outside the plain language of the contract, including prior drafts of the agreement and communications exchanged by the parties during the drafting process.26 This extrinsic evidence, which is called parol evidence, is not admitted formally until the court determines that the contractual term is ambiguous.27 But a California court will provisionally consider parol evidence in the course of deciding whether the contract's meaning is 'reasonably susceptible' to the interpretation being urged.28 This is unlike some other jurisdictions in the U.S., which decide whether a term is ambiguous with reference to the contractual language alone.29

When construing the language of an agreement, California courts are guided by several principles of construction. For example, they will assume words have their 'ordinary and popular' meaning, unless they are used in a special or technical sense,30 in which case those terms will be interpreted as understood by persons in the relevant field.31 Moreover, the contractual language will be interpreted in the context of the whole agreement, including other contracts executed by the same parties as part of the same transaction.32 California law also prefers that courts interpret contracts in a manner that gives each term effect, rather than rendering it superfluous or void.33 So, for example, if a term has two reasonable interpretations, and one would render the term unenforceable, the court will generally adopt the other interpretation.34 In addition, as a general matter, if the court determines that one party is responsible for creating an ambiguity during the drafting process, it will interpret the ambiguity against that party.35 A California court may also consider how the parties acted after the agreement was executed, but before a dispute arose, to determine what was meant by an ambiguous term.36

If the judge concludes the contract is unambiguous, after construing the relevant language in light of the extrinsic evidence, he or she will instruct the jury on what the contract means. But if ascertaining the intent of the parties at the time the contract was executed turns on the credibility of the parol evidence, the jury will weigh that evidence and determine for itself what the parties meant.37

IV DISPUTE RESOLUTION

i Contractual provisions regarding forum selection

Forum selection clauses can be permissive or mandatory. California courts find forum selection clauses to be mandatory when they 'expressly mandate litigation exclusively in a particular forum,' rather than merely providing for 'submission to a jurisdiction'.38 For example, a California court upheld a forum selection clause as mandatory because it specified 'Hamburg as 'the' place where litigation should be conducted, indicating a single place'.39 When a forum selection clause is mandatory, it will be enforced unless the unwilling party can show that enforcement would be unreasonable.40

A forum selection clause is permissive if the parties merely agreed to submit to the jurisdiction of a named court – for example, when a clause states that a particular court 'shall have jurisdiction over the parties'.41 In such instances, California courts have held that the parties 'had not ruled out other jurisdictions'.42 Such a clause will not automatically be enforced, but is subject to a forum non conveniens analysis.43 Under that analysis, a court must (1) 'determine whether the alternate forum is a 'suitable' place for trial'; (2) 'consider the private interests of the litigants'; and (3) consider 'the interests of the public in retaining the action for trial in California'.44

ii Contractual agreements to resolve disputes through alternative dispute resolution

California courts generally refuse to enforce a waiver of the right to a jury trial before a dispute has arisen.45 But California law has codified at least two exceptions to this principle: arbitration and judicial reference.46

Arbitration

Under California law, courts will generally honor provisions calling for a non-judicial means for resolving disputes arising out of or relating to an agreement.47 Arbitrations are generally subject to limited discovery rules, and awards provided for in contractual arbitration are governed by rules of the parties' own selection.48 Interpretation of an arbitration clause in a contract – including which, if any, of the disputed issues are arbitrable – is subject to standard rules of contract interpretation and defence.49 Due to the public policy favoring arbitration, however, such clauses are to be read broadly so as to resolve any doubt in favor of arbitration.50 This presumption in favor of arbitrability is stronger when the arbitration clause uses broad language, such as a clause covering 'any dispute regarding the contract'.51 An arbitrator's award is subject to judicial review only on narrow grounds set forth by statute.52

Moreover, under the California Arbitration Act, a party to an agreement to arbitrate can avoid arbitration only under limited circumstances.53 An unwilling party may challenge an arbitration agreement by arguing that fraud 'permeates it',54 that the compelling party waived the right to arbitrate,55 or that there are grounds that would justify non-enforcement of any type of contract.56

If an agreement concerns interstate commerce (as opposed to commerce entirely within the state of California), the defences to the enforceability of other contracts will not apply to an arbitration clause to the extent those defences facially discriminate against arbitration by interfering with its fundamental attributes, such as lower costs, greater speed, and the ability to choose experts to adjudicate specialised disputes.57 For example, in one California case, a court found unconscionable a contract of adhesion requiring consumers to waive the right to bring a class action and arbitrate all disputes.58 The United States Supreme Court held that this ruling categorically disfavored agreements to arbitrate, which are not typically conducted on a class-wide basis, and required that the arbitration agreement be enforced.59

A party opposing the enforcement of an arbitration agreement is not entitled to a jury trial on that issue in California.60 A dispute on arbitrability will be submitted to a judge for decision.61

Judicial reference

Like contractual arbitration, general judicial reference is a process whereby the parties contractually agree to submit their dispute to an appointed third-party neutral, usually chosen by the parties, who renders a binding decision.62 The main distinction between arbitration and judicial reference is that judicial reference proceedings are conducted much like nonjury trials. For example, referees are bound to follow applicable substantive law rather than more abstract notions of 'equity' or 'fairness'.63 A judicial referee's statement of decisions must be prepared within 20 days,64 and upon its filing, 'judgment may be entered thereon in the same manner as if the action had been tried by the court'.65 Moreover, unlike an arbitral award, which is only reviewable in a narrow set of pre-determined circumstances, parties have the right to full appellate review of a referee's decision, as well as the ability to file a motion for a new trial or a motion to vacate.66

V BREACH OF CONTRACT claims

The elements of a cause of action for breach of contract are: (1) the existence of an enforceable contract, (2) plaintiff's performance (or excuse for nonperformance), (3) defendant's failure to perform, and (4) resulting damages to the plaintiff.67 The required harm or damages may be modest; even when a breach 'has caused no appreciable detriment', the non-breaching party may recover nominal damages or seek an order of enforcement.68

In addition to an award of damages, parties claiming breach of contract may seek an order terminating the agreement and relieving them of their obligation to perform. But not just any breach of contract warrants termination.69 For that, the breach must be 'material', a designation that depends on the circumstances of the breach.70 A material breach generally refers to a situation where a party is substantially deprived of the benefit for which it bargained, but it could also include a less serious breach that indicates the likelihood of a future failure to perform.71 For instance, a minor breach 'prior to or at the outset of performance' may permit a termination, despite that the same breach would not be material if it had occurred after considerable performance.72

If a party communicates that it will not perform under the contract, even before performance is due, that can be enough to justify termination.73 This is called anticipatory repudiation, and it does not have to be expressly communicated. It may be implied from the circumstances when, for example, one party to a contract takes steps that make it impossible for it to perform.74 In the face of an anticipatory repudiation, the non-breaching party does not have an obligation to act.75 He or she is permitted to seek relief immediately, but may also wait until the time of performance to initiate legal action.76

In addition to the express terms of the agreement, every contract in California includes an implied covenant of good faith and fair dealing.77 While the implied covenant does not impose obligations to which the parties did not agree, it does require that the parties carry out their obligations in good faith and without attempts to thwart the other party from receiving the benefit of its bargain.78 The application of this doctrine does not require that a party act with malicious intent. It is enough that a breaching party's conduct was 'objectively unreasonable' and prevented its counter-party from receiving that for which it contracted.79

VI DEFENCES TO ENFORCEMENT

Parties sued for breach of contract in California have several available defences. In the first instance, they can establish that they in fact did perform their obligations under the agreement, or that no enforceable agreement was formed in the first place. But there are also several bases on which a California court might refuse to enforce a valid contract that has admittedly been breached. These are known as affirmative defences, and the burden is typically on the defendant to show that they apply in a particular case.

i No enforceable contract was formed

As noted above, to be enforceable, a contract requires 'reasonably certain' terms.80 If the parties leave essential elements to be worked out later, their understanding might be deemed a mere 'agreement to agree', which is typically not enforceable.81 Parties in California can, however, execute enforceable agreements to negotiate in good faith. Unlike some European jurisdictions, California does not impose a default obligation of fair dealing on parties to a negotiation.82 But an agreement to negotiate in good faith allows parties to create such an obligation by contract.

ii Limitation period unenforceable

The statute of limitations to assert a breach of contract claim in California is four years for written contracts and two years for oral contracts.83 The limitations period begins when the contract has been breached and the non-breaching party knows or has reason to know of the breach.84

California permits parties to shorten or lengthen the time period for asserting a breach in their contract.85 If the parties agree to lengthen the limitations period, their agreement must be in writing and cannot extend the deadline for more than four years at a time.86 The parties may then make 'any number of successive, separately executed agreements for additional four-year' extensions.87 If the parties agree to shorten the limitations period, the cutoff date must still provide a reasonable period for the non-breaching party to raise a claim, a standard that varies based on the circumstances of the agreement.88

iii Enforcement contrary to public policy

A contract with an illegal purpose is unenforceable as a matter of public policy.89 California takes a strict approach to illegal contracts, stating that an entire contract is void if any part of its consideration is unlawful.90 There are rare exceptions, however. California may uphold a contract with an illegal object if the nature of the contract's illegality is not 'grounded in common standards of morality', and the party seeking enforcement is 'less morally blameworthy' than its adversary.91

iv Unconscionability

A contract is unconscionable if it is so grossly unfair that it should not be enforced. Unconscionability has two components, one procedural and the other substantive, both of which must be present to find a contract unenforceable.92 Contracts that are substantively unconscionable have been described in a variety of ways, including 'overly-harsh',93 'unfairly one-sided',94 'unduly oppressive',95 or 'so one-sided as to 'shock the conscience''.96 The California Supreme Court held that all of these terms 'mean the same thing', which it characterised as 'a substantial degree of unfairness beyond 'a simple old-fashioned bad bargain''.97

Procedural unconscionability refers to some element of 'surprise' or 'oppression' in the process of negotiating or executing the agreement.98 For example, a material term may have been hidden by the party seeking to enforce it (i.e., surprise),99 or there may be such a disparity in bargaining power that the weaker party is not given a meaningful choice (i.e., oppression).100

Adhesion contracts, which are the standardised agreements offered on a 'take it or leave it' basis by parties with superior bargaining power, all contain an element of procedural unconscionability. But the surrounding circumstances may mitigate that unfairness. For example, the weaker party may have had other counter-parties with whom he could have contracted.101 And even an adhesion contract that is procedurally unconscionable will be enforced, provided it is not substantively unconscionable and complies with the 'reasonable expectations' of the adhering party.102

In evaluating unconscionability, courts consider the totality of circumstances, in which a high degree of substantive unconscionability can be counteracted by a low degree of procedural unconscionability, and vice versa.103 For example, the presence of one-sided terms could be offset by the fact that the parties had relatively equal bargaining power.

v Duress

California will allow a party to rescind a contract if it was 'under duress' when it agreed to the terms. Traditionally, duress refers to circumstances where a person or his property were unlawfully confined or threatened.104 California courts have extended the doctrine to cover economic duress, but that defence is generally only available to a party who had no choice but to agree or face financial ruin.105 For example, in one case, the fact that a party would merely have lost a job if he did not agree to the contract was not enough to show economic duress.106

vi Impossibility or impracticality

California law provides a defence to the enforcement of a contract when, through some intervening event, performance becomes physically impossible or so excessively expensive or difficult that it is no longer practical.107 A merely unforeseen expense, even a sizeable one, is not enough to excuse performance. But if the difficulty of performance becomes so great that the parties could not have expected compliance under the new circumstances, the defence of impracticality is available. For example, in one case, a builder agreed to buy his gravel from the operator of a particular gravel pit.108 Unknown to the parties at the time, most of the gravel was under water and would cost ten times the anticipated amount to extract.109 The builder was excused from performance on the ground of impracticality.110

vii Frustration of purpose

The doctrine of frustration of purpose is similar to the doctrines of impracticality and impossibility in that some development after the execution of the contract changes the basic expectations on which the agreement was reached. But, unlike those other defences, frustration of purpose applies to situations where performance is still feasible but would not accomplish the purpose of the agreement. For example, in one case, a hotel company agreed to pay a monthly fee to a golf club to allow access to the course for its guests, but the hotel later burned down.111 Payment of the fee was still possible, but achieving the underlying purpose of the agreement was not, and the agreement was not enforced.112

VII FRAUD, MISREPRESENATION AND OTHER CLAIMS

If one party to an agreement obtained the other party's assent through a fraudulent misrepresentation, the agreement may not be enforceable. A party invoking a fraudulent inducement defence must prove that its counter-party made the misrepresentation knowing it was false and with the intention that it be relied upon.113 California, unlike New York, does not require the misled party to show that its ignorance was 'excusable'.114 As one court put it, California 'protect[s] the ignorant and credulous no less than the well-informed and analytical'.115 Courts in California may hold sophisticated parties to a higher standard, however.116 If a defrauded party's reliance was not reasonable 'in the light of his own intelligence and information', he will not succeed on this defence.117

A party cannot exculpate itself from a fraudulent inducement defence with a contractual provision.118 Even when a contract says that neither party relied on any extrinsic representations, for example, the court will still consider extrinsic evidence of fraudulent misrepresentation.119

VIII REMEDIES

Damages for breach of a contract are generally intended 'to approximate the agreed-upon performance' by putting the plaintiff in 'as good a position as he or she would have occupied if the defendant had not breached the contract'.120 To prevail on a breach of contract claim, a plaintiff generally must show damage caused by or likely to result from the breach.121

i Compensatory damages

In an action for breach of contract, the non-breaching party can recover monetary payments for actual, provable, and foreseeable losses resulting from the other party's failure to perform according to the agreement's terms.122 A prevailing party is entitled to money damages whenever the party can show damages of a certain amount with reasonable certainty.123 Compensatory damages must also be reasonable, may not be unconscionable or oppressive, and cannot be greater than the benefit of full performance.124

California recognises two primary types of compensatory damages for breach of contract: general damages and special damages.125 General damages are those that 'would be likely to result' from the breach and, as such, are deemed within the parties' contemplation at time of the agreement.126 These are the most common types of damages.

Special damages, also known as consequential damages, do not necessarily follow directly from the breach, but sometimes occur as a consequence.127 For example, profits lost by a business as an indirect result of the breach are typically considered special or consequential damages.128 Special damages must have been within the contemplation of the parties at the time they entered into the contract.129 If the breaching party did not have advance notice that this special harm might result from a breach, this category of damages is not recoverable.130

ii Punitive damages

In California, punitive damages, also known as exemplary damages, are ordinarily not recoverable in a contract action, even if the defendant's breach was willful.131 Punitive damages may be available, however, if – in addition to the breach of contract – an independent tort is involved.132 Even in such cases, however, a defendant must act with 'oppression, fraud, or malice' toward the plaintiff.133 Mere negligence, even gross negligence, is not sufficient to justify an award of punitive damages.134

iii Specific performance

Specific performance is an equitable remedy that compels the breaching party to live up to his contractual obligations.135 A court will not order specific performance where monetary damages will make a plaintiff whole.136 Specific performance is available only where: (1) the contract's terms are sufficiently definite; (2) consideration is adequate; (3) substantial similarity exists between the requested performance and the contract's terms; (4) there is mutuality of remedies; and (5) plaintiff's legal remedy is inadequate.137

The availability of specific performance typically depends on the uniqueness of the goods or services being exchanged.138 The classic example of a suit for specific performance seeks to compel the seller of real property to transfer the property to the buyer.139 Since each piece of real property is considered unique, money damages are considered inadequate.140 Specific performance is never available in certain specific circumstances defined by statute, such as contracts for employment or personal services.141 That is because the law generally views requiring performance in those circumstances as akin to involuntary servitude.

iv Rescission

Rescission restores the parties to the position that they would have been in had they not entered the contract.142 Following an order of rescission, the parties no longer need to comply with their obligations and must restore any consideration exchanged.143 When a contract is induced by fraud, negligent misrepresentation, or duress, rescission is an appropriate remedy.144 California courts may award both damages and rescission (so long as the relief does 'not include duplicate or inconsistent' recovery), and they may also require the party to whom such relief is granted to compensate its counter-party or otherwise adjust the equities between them.145

v Limitations of liability

Contractual terms limiting the parties' liability in the event of breach will generally be upheld, so long as no statute expressly prohibits it and no public interest is involved.146 The public interest may be involved where, for example, the limitation provision concerns a regulated business or an important public service.147 No matter what the contract says, however, it cannot exempt the parties from liability for intentional wrongs, gross negligence, or a violation of law.148

vi liquidated damages

California law allows for liquidated damages, in which the parties specify in the contract the amount that must be paid in the event of breach.149 Liquidated damages control regardless of the amount of actual damages incurred, thereby limiting the breaching parties' exposure and relieving the nonbreaching party of having to prove an amount of damages.150 Liquidated damages agreements are enforceable unless another statute expressly controls damages or the liquidated damages provision was unreasonable.151 To avoid invalidation as an unlawful penalty, a liquidated damages provision must have a reasonable relationship to actual damages.152 Otherwise, it risks being deemed unconscionable and reduced by the court.153

IX CONCLUSIONs

While California imposes some narrow restrictions on the freedom to contract as a matter of public policy, parties who choose California law to govern their agreement can generally expect judicial decisions that respect and enforce unambiguous language as written. They can also expect a reliable set of governing principles that are stable over time. Because of the codification of California contract law, significant changes require legislative action, which is generally less frequent than judicial developments. Moreover, as home to the world's leading tech and entertainment sectors, California is often where disputes related to cutting edge technologies and intellectual property are heard. As a result, parties who choose a California forum can benefit from sophisticated judges who are often more conversant in these emerging legal issues than those in other jurisdictions.


Footnotes

1 Rollin Ransom and Kevin Rubino are partners at Sidley Austin LLP. The authors would like to acknowledge the assistance of their colleagues Tyler Wolfe, Mohindra Rupram and Chelsea Davis in the preparation of this chapter.

2 Canedo v. Pac. Bell Tel. Co., 341 F. Supp. 3d 1116, 1128 (S.D. Cal. 2018).

3 Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793, 811 (1998); Ladas v. Cal. State Auto. Ass'n, 19 Cal. App. 4th 761, 770 (1993).

4 Cal. Civ. Code § 1550(1); Cal. Civ. Code § 1556; Scollan v. Gov't Emp. Ins. Co., 222 Cal. App. 2d 181, 183–84 (1963).

5 Panagotacos v. Bank of Am., 60 Cal. App. 4th 851, 855–56 (1998).

6 Cal. Civil Code § 1584; Estate of Klauenberg, 32 Cal. App. 3d 1067, 1070 (1973).

7 C9 Ventures v. SVC-West, L.P., 202 Cal. App. 4th 1483, 1500 (2012).

8 City of Orange v. San Diego Cty. Emps. Ret. Ass'n., 103 Cal. App. 4th 45, 52–53 (2002).

9 Cal. Civ. Code § 1587(2).

10 id.

11 Cal. Civ. Code § 1605.

12 Auerbach v. Great W. Bank, 74 Cal. App. 4th 1172, 1185 (1999).

13 See Sections V.D., V.E, and VI.

14 Cal. Civ. Code § 1624(a).

15 id. §§ 1624(a)(1), 1624(a)(3).

16 Cal. Civ. Code § 1633.7. Unlike New York, California has adopted the Uniform Electronic Transaction Act, which specifically authorises the use of electronic contracts and signatures. Cal. Civ. Code § 1633.1, et seq.

17 Cal. Civ. Code § 1698(b).

18 Biren v. Equal. Emergency Med. Grp., Inc., 102 Cal. App. 4th 125, 141 (2002).

19 id.

20 id.

21 See Cal. Civ. Code § 1638.

22 Monaco v. Bear Stearns Residential Mortg. Corp., 554 F. Supp. 2d 1034, 1040 (C.D. Cal. 2008).

23 Marin Storage & Trucking, Inc. v. Benco Contracting and Eng'g, Inc., 89 Cal. App. 4th 1042, 1050 (2001).

24 Roth v. Malson, 67 Cal. App. 4th 552, 557 (1998).

25 Falkowski v. Imation Corp., 132 Cal. App. 4th 499, 505–506 (2005).

26 Masterson v. Sine, 68 Cal. 2d 222, 225 (1968).

27 Winet v. Price, 4 Cal. App. 4th 1159, 1165 (1992).

28 See Cal. Civ. Proc. Code § 1856; Winet, 4 Cal. App. 4th at 1165.

29 See, e.g., Davis v. G.N. Mortg. Corp., 244 F. Supp. 2d 950, 956 (N.D. Ill. 2003) ('Illinois courts have embraced the parol evidence rule in its more conservative approach, which has been termed the 'four corners' rule').

30 Cal. Civ. Code § 1644; Apra v. Aureguy, 55 Cal. 2d 827, 830 (1961) ('It is a general rule governing the construction of contracts that unless a contract is ambiguous, its meaning must be determined from the words used; and courts will not, because a more equitable result might be reached thereby, construe into the contract provisions that are not therein.') (citations omitted).

31 Cal. Civ. Code § 1645; Johanson v. Riverside Cty. Select Groves, 4 Cal. App. 2d 114, 122 (1935).

32 Cal. Civ. Code §§ 1641, 1642; Beaver v. Tarsadia Hotels, 978 F. Supp. 2d 1124, 1140 (S.D. Cal. 2013) (citations omitted).

33 Cal. Civ. Code § 3541.

34 Cal. Civ. Code § 1599; County of Ventura v. City of Moorpark, 24 Cal. App. 5th 377, 384–85 (2018).

35 Cal. Civ. Code §§ 1636,1654; Miller v. U.S., 363 F.3d 999, 1006 (9th Cir. 2004).

36 Southern Pac. Transp. Co. v. Santa Fe Pac. Pipelines, Inc., 74 Cal. App. 4th 1232, 1242 (1999).

37 City of Hope Nat'l Med. Ctr. v. Genentech, Inc., 43 Cal. 4th 375, 395 (2008).

38 Intershop Commc'ns, AG v. Superior Court, 104 Cal. App. 4th 191, 196 (2002).

39 id. at 197.

40 id. at 198.

41 Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F. 2d 75, 76 (9th Cir. 1987); see also Intershop Commc'ns, 104 Cal. App. 4th at 197.

42 Intershop Commc'ns, 10 Cal. App. 4th at 197.

43 id. at 196.

44 Stangvik v. Shiley, Inc., 54 Cal. 3d 744, 751 (1991); see also Intershop Commc'ns, 104 Cal. App. 4th at 198.

45 Rincon EV Realty LLC v. CP III Rincon Towers, Inc., 8 Cal. App. 5th 1, 15 (2017).

46 In addition to the formal alternative dispute mechanisms discussed below, California courts (both state and federal) strongly promote mediation of disputes, typically requiring that litigating parties engage in some form of non-binding dispute resolution procedure before they may proceed to trial. See, e.g., Ventura Superior Court Rules, rule 3.24; C.D. Cal. L.R., rule 16-15.1.

47 Cal. Civ. Proc. Code § 1280 et seq. California has special provisions regulating arbitration disputes under public construction contracts, id. § 1296, international commercial disputes, id. 1297.11–1297.432, and disputes under real estate contracts, id. §§ 1298–1298.8.

48 Cal. Civ. Proc. Code § 1282.2; See McRae v. Superior Court, 221 Cal. App. 2d 166, 172 (1963); Rifkind & Sterling, Inc. v. Rifkind, 28 Cal. App. 4th 1282, 1292 (1994).

49 See Badie v. Bank of Am., 67 Cal. App. 4th 779, 787 (1998).

50 United Transp. Union v. S. Cal. Rapid Transit Dist., 7 Cal. App. 4th 804, 808 (1992).

51 Wolitarsky v. Blue Cross of Cal., 53 Cal. App. 4th 338, 348 (1997).

52 See Cal. Civ. Proc. Code § 1285 et seq.

53 id. § 1281.2.

54 King v. Prudential-Bache Sec., Inc., 226 Cal. App. 3d 749, 755 (1990).

55 Engalla, 15 Cal. 4th at 982.

56 Cal. Civ. Proc. Code §§ 1281, 1281.2(b); see supra § V.

57 Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 912–13 (2015) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)).

58 Laster v. T-Mobile USA, Inc., No. 05CV1167, 2008 WL 5216255, at *14 (S.D. Cal. Aug. 11, 2008), aff'd sub nom. Laster v. AT & T Mobility LLC, 584 F.3d 849 (9th Cir. 2009), rev'd sub nom. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), and amended in part, No. 05CV1167, 2012 WL 1681762 (S.D. Cal. May 9, 2012).

59 AT&T Mobility LLC, 563 U.S. 333.

60 Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 402 (1996).

61 id. at 407 (quoting Cal. Civ. Proc. Code § 1290.2).

62 Cal. Civ. Proc. Code § 638 et seq.

63 Nat'l Union Fire Ins. Co. v. Nationwide Ins. Co., 69 Cal. App. 4th 709, 715, 724 (1999).

64 Cal. Civ. Proc. Code § 643

65 Cal. Civ. Proc. Code § 645.

66 Cal. Civ. Proc. Code §§ 645, 904.1.

67 Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011); Richman v. Hartley, 224 Cal. App. 4th 1182, 1186 (2014).

68 Cal. Civ. Code § 3360.

69 Brawley v. J.C. Interiors, Inc., 161 Cal. App. 4th 1126, 1134 (2008).

70 See Brown v. Grimes, 192 Cal. App. 4th 265, 277 (2011) ('When a party's failure to perform a contractual obligation constitutes a material breach of the contract, the other party may be discharged from its duty to perform under the contract.') (quotations omitted).

71 Ewing v. K2 Prop. Dev., LLC, No. 16CV6782018, WL 4852159, at *3 (S.D. Cal. Oct. 4, 2018).

72 Associated Lathing & Plastering Co. v. Louis C. Dunn, Inc., 135 Cal. App. 2d 40, 50 (1955) ('Where the failure is at the outset, a very slight failure is often sufficient to discharge the injured party.') (quotations omitted); Karz v. Dep't of Prof'l Vocational Standards, 11 Cal. App. 2d 554, 557 (1936).

73 See Gold Mining & Water Co. v. Swinerton, 23 Cal. 2d 19, 29 (1943).

74 Mission Beverage Co. v. Pabst Brewing Co., LLC, 15 Cal. App. 5th 686, 702 (2017).

75 id. at 703.

76 id.

77 Guz v. Bechtel Nat'l, Inc., 24 Cal.4th 317, 349–50 (2000).

78 id.

79 Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 371–73 (1992) (citing Robert S. Summers, 'Good Faith' in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va. L. Rev. 195, 204–06 (1968)).

80 Lindsay v. Lewandowski, 139 Cal. App. 4th 1618, 1622 (2006) (citing Weddington Prods., 60 Cal. App. 4th at 811).

81 See Copeland v. Baskin Robbins U.S.A., 96 Cal. App. 4th 1251, 1256 (2002).

82 E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. 217, 239 (1987) ('European courts have been more willing than American ones to accept scholarly proposals for precontractual liability based on a general obligation of fair dealing.'); see Copeland, 96 Cal. App. 4th at 1259–60 (noting that California has rejected such a theory of liability).

83 Cal. Civ. Proc. Code §§ 337, 339.

84 Spear v. Cal. State Auto. Ass'n, 2 Cal. 4th 1035, 1042 (1992); see Norgart v. Upjohn Co., 21 Cal. 4th 383, 397 (1999) (noting that the discovery rule 'postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action'); NBCUniversal Media, LLC v. Superior Court, 225 Cal. App. 4th 1222, 1232–33 (2014).

85 Hambrecht & Quist Venture Partners v. Am. Med. Int'l, Inc., 38 Cal. App. 4th 1532, 1547 (1995).

86 Cal. Civ. Proc. Code § 360.5; Hambrecht, 38 Cal. App. 4th at 1547.

87 Cal. Civ. Proc. Code § 360.5; Hambrecht, 38 Cal. App. 4th at 1547.

88 Hambrecht, 38 Cal. App. 4th at 1548; Capehart v. Heady, 206 Cal. App. 2d 386, 388–89 (1962); William L. Lyon & Assoc., Inc. v. Superior Court, 204 Cal. App. 4th 1294, 1307 (2012) ('Reasonable in this context means the shortened period nevertheless provides sufficient time to effectively pursue a judicial remedy.') (internal quotations omitted).

89 See McIntosh v. Mills, 121 Cal. App. 4th 333, 346 (2004) (citing George A. Strong, The Enforceability of Illegal Contracts, 12 Hastings L.J. 347, 350 (1961)).

90 Cal. Civ. Code § 1608; see Cal. Civ. Code §§ 1607, 1667.

91 McIntosh, 121 Cal. App. 4th at 347, n.10; Cain v. Burns, 131 Cal. App. 2d 439, 441–42, 444 (1955).

92 Patterson v. ITT Consumer Fin. Corp., 14 Cal. App. 4th 1659, 1664 (1993); A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486 (1982); Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 910 (2015).

93 Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 1532 (1997).

94 Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1071 (2003).

95 Perdue v. Crocker Nat'l Bank, 38 Cal. 3d 913, 925 (1985).

96 Pinnacle Museum Tower Ass'n v. Pinnacle Market Dev., 55 Cal. 4th 223, 246 (2012) (citation omitted); Sanchez, 61 Cal. 4th at 910–11.

97 Sanchez, 61 Cal. 4th at 911 (quoting Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1145 (2013)).

98 Patterson, 14 Cal. App. 4th at 1664; A & M Produce, 135 Cal. App. 3d at 486.

99 Patterson, 14 Cal. App. 4th at 1664 (citing A & M Produce, 135 Cal. App. 3d at 486).

100 A & M Produce, 135 Cal. App. 3d at 486 (quoting Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (1965)).

101 See Carbajal v. CWPSC, Inc., 245 Cal. App. 4th 227, 243 (2016) (citing Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 115 (2000); Little, 29 Cal. 4th at 1071.

102 Cal. Civ. Code § 1670.5; Patterson, 14 Cal. App. 4th at 1663–64.

103 Carbajal, 245 Cal. App. 4th at 242.

104 Cal. Civ. Code § 1569.

105 Tarpy v. Cty. of San Diego, 110 Cal. App. 4th 267, 277 (2003) (citing CrossTalk Prods., Inc. v. Jacobson, 65 Cal. App. 4th 631, 644 (1998)); see also, Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1119 (9th Cir. 2018).

106 Hicks, 897 F.3d at 1119–20.

107 Cal. Civ. Code §§ 1596, 1597; see Schmeltzer v. Gregory, 266 Cal. App. 2d 420, 424 (1968).

108 Mineral Park Land Co. v. Howard, 172 Cal. 289, 293 (1916).

109 id. at 291, 293.

110 id. at 293.

111 La Cumbre Golf & Country Club v. Santa Barbara Hotel Co., 205 Cal. 422, 423, 425 (1928).

112 id. at 425–26.

113 Engalla v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 974 (1997).

114 TufAmerica, Inc. v. Codigo Music LLC, 162 F. Supp. 3d 295, 326 (S.D.N.Y. 2016).

115 Carroll v. Dungey, 223 Cal. App. 2d 247, 256 (1963).

116 See Blankenheim v. E.F. Hutton & Co., 217 Cal. App. 3d 1463, 1474 (1990).

117 See Seeger v. Odell, 18 Cal. 2d 409, 415 (1941).

118 Cal. Civ. Code § 1668.

119 Manderville v. PCG&S Grp., Inc., 146 Cal. App. 4th 1486, 1500–501 (2007).

120 Lewis Jorge Constr. Mgmt., Inc. v Pomona Unified Sch. Dist., 34 Cal. 4th 960, 967 (2004) (internal citations and quotation marks omitted).

121 Cal. Civ. Code § 3300 (damage must have been 'proximately caused' by the breach).

122 U.S. Ecology, Inc. v. State, 129 Cal. App. 4th 887, 909 (2005).

123 Cal. Civ. Code § 3301; see also Sargon Enters., Inc. v. Univ. of S. Cal., 55 Cal. 4th 747, 773–74 (2012).

124 Cal. Civ. Code §§ 3358–3359; see also Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 1714 (1996).

125 Lewis Jorge Constr. Mgmt., 34 Cal. 4th at 968.

126 Cal. Civ. Code § 3300; see also Brandon & Tibbs v George Kevorkian Accountancy Corp., 226 Cal. App. 3d 442, 457–59 (1990).

127 Lewis Jorge Constr. Mgmt., 34 Cal. 4th at 968.

128 id. at 967.

129 See Martin v. U-Haul Co. of Fresno, 204 Cal. App. 3d 396, 409 (1988).

130 Millikan v. Am. Spectrum Real Estate Servs. Cal., Inc., 117 Cal. App. 4th 1094, 1104–105 (2004).

131 Cal. Civ. Code § 3294(a).

132 Cates Constr., Inc. v Talbot Partners, 21 Cal. 4th 28, 61 (1999).

133 Cal. Civ. Code § 3294(a).

134 Budway Enters., Inc. v. Fed. Ins. Co., No. EDCV 09-448, 2009 WL 1014899, at *7 (C.D. Cal. Apr. 14, 2009) (citing Ebaugh v. Rabkin, 22 Cal. App. 3d 891, 894 (1972)).

135 Cal. Civ. Code § 3422; Cal. Civ. Code § 3384.

136 Wilkison v. Wiederkehr, 101 Cal. App. 4th 822, 830 (2002).

137 Blackburn v Charnley, 117 Cal. App. 4th 758, 766 (2004).

138 See, e.g., Wilkinson, 101 Cal. App. 4th at 833.

139 Real Estate Analytics, L.L.C. v. Vallas, 160 Cal. App. 4th 463, 472–73 (2008).

140 id.

141 Cal. Civ. Code § 3390.

142 Cal. Civ. Code § 1688; Little v. Pullman, 219 Cal. App. 4th 558, 568 (2013).

143 Cal. Civ. Code § 1689 (containing requirements for mutual and unilateral rescission of a contract); People ex rel. Kennedy v. Beaumont Inv., Ltd., 111 Cal. App. 4th 102, 133 (2003); Larsen v. Johannes, 7 Cal. App. 3d 491, 501 (1970).

144 Cal. Civ. Code § 1689(b)(1).

145 Cal. Civ. Code § 1692.

146 Tunkl v. Regents of Univ. of Cal., 60 Cal. 2d 92 (1963).

147 id. at 98–100.

148 Cal. Civ. Code § 1668.

149 Util. Consumers' Action Network, Inc. v. AT&T Broadband of S. Cal., Inc., 135 Cal. App. 4th 1023, 1028 (2006).

150 id.

151 Cal. Civ. Code § 1671(a), (b).

152 Morris v. Redwood Empire Bancorp, 128 Cal. App. 4th 1305, 1314 (2005), review denied, (Aug. 24, 2005).

153 Cal. Civ. Code §§ 1670.5, 3359; see also Morris, 128 Cal. App. 4th at 1316.