By Stanton T. Mathews & Kevin Lancaster
Excerpted from California Causes of Action
- Statute of limitations
- Affirmative defenses
- Related causes of action
- Form complaint
Where a party to a contract fails to perform in accordance with the contract, or if the consideration he is required to give otherwise fails in whole or in part through his fault, the other party may invoke this failure as a basis for rescinding or terminating the contract, as long as the failure or refusal to perform constitutes such a material breach as to justify rescission or termination. Taliaferro v. Davis, 216 Cal. App. 2d 398, 412, 31 Cal.Rptr. 164, 172 (1963); Cal. Civ. Code §1689.
In addition to the specific elements set forth below, refer to §11-1:20 (Breach of Contract In General) for elements necessary in any breach of contract action.
§2:21 Failure to Execute a Promise
Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party. This failure may arise from a willful breach of the promise. Bliss v. California Coop. Producers, 30 Cal.2d 240, 248, 181 P.2d 369, 374 (1947); Taliaferro v. Davis, 216 Cal. App. 2d 398, 410-11, 31Cal. Rptr. 164, 172 (1963).
§2:22 Breach Must Be Material
For a breach to justify abandonment of the contract, the promise must “go to the root of the contract,” so that a failure to perform it would render the performance of the rest of the contract different in substance from what was contracted. Walker v. Harbor Bus. Blocks Co., 181 Cal. 773, 780, 186 P. 356, 359 (1919).
§2:31 Failure to Execute a Promise
The promise that is breached need not be expressly stated in the contract. Bliss v. California Coop. Producers, 30 Cal. 2d 240, 249, 181 P.2d 369, 374 (1947) (even in absence of express promise and fixed time for performance in contract, court implied promise by corporation to market and process growers’ agricultural products and pay insurance premiums for at least ten years where growers had given corporation notes payable in annual installments over ten years as an extension of credit to corporation).
Failure of consideration (as distinguished from lack of consideration) is not based upon facts existing at the time the parties entered the contract, but instead, upon some fact or contingency that occurs between the time the parties contracted and the action resulting in the material failure of performance by one of the parties; therefore, the contract is not void, but rather is a ground for rescinding the contract, which remains in effect until it is rescinded or terminated. Taliaferro v. Davis, 216 Cal. App. 2d 398, 411, 31 Cal. Rptr. 164, 172 (1963) (no failure of consideration under marital property settlement agreement where wife secured writ of execution and caused sale of property to satisfy debt due from plaintiff husband).
No failure of consideration existed where the payee under a promissory note failed to obtain construction financing and accomplish other acts, as these acts were not conditions precedent to the issuance of the note. Boswell v. Reid, 199 Cal. App. 2d 705, 713, 19 Cal. Rptr. 29, 34 (1962).
Complete failure of consideration existed when the defendant, who promised to construct an apartment building and furnish all materials and labor free and clear of liens, in exchange for a note and deed of trust from the owner, abandoned the project with $15,000 in mechanic’s liens prior to completion, and the owner spent more than the contract price to complete the construction. Benson v. Andrews, 138 Cal.App. 2d 123, 132, 292 P.2d 39, 44 (1955).
Where an insured signed a release in connection with an insurance settlement, the lapse of eight days between signing the release and receiving the check did not constitute failure of consideration. Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909, 282 P.2d 1039, 1041 (1955).
A party may rescind for partial failure of consideration even if there has been partial performance by the party against whom the rescission is sought. Coleman v. Mora, 263 Cal.App. 2d 137, 150-51, 69 Cal. Rptr. 166, 173-74 (1968) (principal had right to rescind brokerage agreement after broker had had a reasonable time to perform his obligations and failed to do so).
A house manufacturer’s failure to deliver the house to the buyer constituted an entire failure of consideration for the contract of sale. Nelson v. Sperling, 270 Cal. App. 2d, 194, 195, 76 Cal. Rptr. 481, 482 (1969).
§2:32 Breach Must Be Material
To determine if a breach is material, courts consider the following: (1) the extent of actual performance or preparation; (2) the defaulting party’s good faith, or lack thereof; (3) hardship, if any, resulting to the defaulting party; and (4) the adequacy of damages to compensate the non-defaulting party. CACI 323.
A party must assume a legal duty in making the promise. Bleecher v. Conte, 29 Cal.3d 345, 350, 352, 213 Cal. Rptr. 852, 854, 856 (1981) (buyer’s obligation to proceed diligently and in good faith with recordation of tract map and obtain city approval to develop property constituted valid consideration).
§2:32a Willful Failure to Perform
A willful default may be material even though the innocent party suffers no economic loss. Coleman v. Mora, 263 Cal. App. 2d 137, 150, 69 Cal. Rptr. 166, 173 (1968) (owner was justified in rescinding exclusive listing agreement where broker did not produce any prospective buyers and made only nominal efforts to advertise property); Wilson v. Corrugated Kraft Containers, Inc., 117 Cal. App. 2d 691, 697, 256 P.2d 1012, 1016 (1953) (fact that seller might have sold its product elsewhere did not diminish the materiality of buyer’s failure to purchase its requirements from seller).
Plaintiff’s failure to correct stucco defects on defendants’ house, after receiving ample notice to correct the problem, was willful and intentional, and therefore, a material breach that justified defendants’ rescission of the contract. Bonadelle Construction Co. v. Hernandez, 169 Cal. App. 2d 396, 399, 337 P.2d 85, 87 (1959).
A vendor’s failure to install certain improvements on lots to be conveyed, including water pipes, sidewalks and curbing, in accordance with the terms of a contract, was a material failure of consideration because the lots were less valuable without these improvements. Walker v. Harbor Bus. Blocks Co., 181 Cal.773, 782, 186 P. 356, 360 (1919).
§2:32b Delay in Performance/“Time Is of the Essence”
Mere delay in performing a contract is not a material breach unless the delay is such as to warrant the conclusion that the party does not intend to perform. Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909-10, 282 P.2d 1039, 1041 (1955) (eight-day delay in plaintiff’s receipt of insurance proceeds after signing release form was not such a material breach as to give plaintiff right to rescind release).
Delay in performance is a material failure of consideration only if time is of the essence. Johnson v. Alexander, 63 Cal. App. 3d 806, 813, 134 Cal. Rptr. 101, 105 (1976).
If prompt performance is, by the express language of the contract, or by its very nature, a vital matter, time is of the essence of the contract, and a delay in performance is a material failure of consideration. Johnson v. Alexander, 63 Cal. App. 3d 806, 811, 134 Cal.Rptr. 101, 104 (1976).
Time is not of the essence unless it clearly appears from the terms of the contract or, in light of all circumstances, that this was the intention of the parties. However, no specific words are necessary to make time of the essence. Henck v. Lake Hemet Water Co., 9 Cal. 2d 136, 143-44, 69 P.2d 849, 852-53 (1937) (defendant water company’s use of specific date for payment of annual dues was a means to insure prompt payment, not an indication that failure to perform at agreed time would result in immediate termination and forfeiture of plaintiff’s right to receive water).
The timing of the breach is relevant in determining the materiality of the breach. A breach prior to or at the outset of performance may justify rescission when the same breach late in performance would not be significant. When the failure to perform is at the outset, it is helpful to consider whether it would be more just to free the injured party or to require him to perform his promise, in both cases giving the injured party a right of action if the failure to perform was wrongful. Associated Lathing and Plastering Co. v. Louis C. Dunn, Inc., 135 Cal. App. 2d 40, 50, 286 P.2d 825, 830 (1955) (subcontractor materially breached contract by failing to cooperate with general contractor on several occasions, even though dollar amounts involved were relatively minor, because contract provided that time was of the essence, and all indications were that subcontractor’s delay and failure to cooperate were going to continue throughout term of contract).
When no time is specified for doing an act, other than paying money, a demand for performance is necessary to put the promisor in default. Johnson v. Alexander, 63 Cal. App. 3d 806, 813, 134 Cal. Rptr. 101, 105 (1976).
Rescission (Nelson v. Sperling, 270 Cal. App. 2d 194, 195, 76 Cal. Rptr. 481, 482 (1969) (failure of consideration for rescinding party’s obligation, in a material respect and from any cause, is sufficient basis for unilateral rescission)).
No Notice of Rescission Required (Benson v. Andrews, 138 Cal. App. 2d 123, 136, 292 P.2d 39, 47 (1955) (defendant was not required to give notice of rescission after discovering that plaintiff builder abandoned his construction obligations); see also Russ Lumber & Mill Co. v. Muscupiabe Land & Water Co., 120 Cal. 521, 527, 52 P. 995, 997 (1898)).
Restitution (Nelson v. Sperling, 270 Cal. App. 2d, 194, 195, 76 Cal. Rptr. 481, 482 (1969) (buyer of prefabricated house could recover purchase price paid to seller who won house in contest when manufacturer of house failed to deliver it)).
Compensatory Damages (Associated Lathing and Plastering Co. v. Louis C. Dunn, Inc., 135 Cal. App. 2d 40, 51, 286 P.2d 825, 831 (1955) (where subcontractor failed to perform, general contractor was entitled to damages equal to difference between price for which subcontractor agreed to do lathing and plastering work and reasonable cost of completing job); Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909, 282 P.2d 1039, 1041 (1955) (where the failure of consideration is not material, damages are plaintiff’s sole remedy and rescission is not available)).
The statute of limitations is four years for claims based on a written instrument. Cal. Civ. Proc. Code §337(1). For claims based on an oral agreement, the limitations period is two years. Cal. Civ. Proc. Code §339(1).
Note: “Failure of consideration” and “failure to perform” are often used as affirmative defenses to a charge of breach of contract, as well as grounds for rescinding or terminating a contract. If a defendant relies on the plaintiff’s failure to perform as a defense to his own nonperformance, he must plead and prove such failure to perform specifically as an affirmative defense. See Bliss v. CaliforniaCoop. Producers, 30 Cal. 2d 240, 248, 181 P.2d 369, 374 (1947); Boswell v. Reid, 199 Cal. App. 2d 705, 713, 19 Cal. Rptr. 29, 34 (1962).
No Notice of Rescission Required. A party does not waive his right to rely upon the defense of failure of consideration by failing to announce a formal rescission. He can either take affirmative action by rescinding the contract or wait and defend against the action on the ground of failure of consideration. Benson v. Andrews, 138Cal. App. 2d 123, 136, 292 P.2d 39, 47 (1955).
See generally §11-1:60 (Breach of Contract In General) and Appendix A for additional affirmative defenses.
Breach of Contract In General (§11-1:00).
Breach of Contract Containing Satisfaction Clause (§11-3:00).
Anticipatory Breach (§11-6:00).
COUNTY OF _________
________________, an individual; ) CASE NO:
_______________, an individual; and )
_______________, INC., a )
California Corporation )
) COMPLAINT FOR
) (1) BREACH OF CONTRACT;
vs. ) (2) SPECIFIC PERFORMANCE; AND
) (3) DECLARATORY RELIEF.
_____________, an individual, and )
DOES 1 through 100, inclusive, )
Plaintiffs __________________, _______________, and _______________________ and ____________, Inc., allege as follows:
(By all Plaintiffs against all Defendants)
1. Plaintiff ___________________ (“_________”) was at relevant times mentioned a resident of the County of ________, State of Californiaand now is a resident of ________County.
2. Plaintiff ________________ (“_______”) was and is a resident of the County of _________, State of California.
3. Plaintiff ___________________________, Inc. (“__________”) was and is a corporation organized and existing under the laws of the State of California, conducting business in _________, California, with its principal office in _________ County, California.
4. Plaintiffs are informed and believe and based on such information and belief allege that Defendant _____________ (“_____”) was and is a resident of the County of _________, State of California.
5. The true names and capacities, whether individual, corporate, associate or otherwise, of Defendants Does 1 through 100, inclusive, are unknown to Plaintiffs at the present time. Plaintiffs therefore sue said Defendants by such fictitious names and will seek leave of Court to amend this Complaint to set forth their true names and capacities thereof, when the same has been ascertained.
6. Defendants, and each of them, were and are the agents, servants, representatives, and/or employees of each of the other Defendants herein, and were at all times acting within the course and scope of such agency, representation and employment and with the permission and consent of each of said Defendants.
7. Plaintiffs are informed and believe, and upon such information and belief allege, that each of the Defendants, including Does 1 through 100, inclusive, were, at all times herein mentioned, acting in concert with, and in conspiracy with, each and every one of the remaining Defendants.
8. Wherever appearing in this complaint, each and every reference to Defendants and to any of them, is intended to be and shall be a reference to all Defendants hereto, and to each of them, named and unnamed, including all fictitiously named Defendants, unless said reference is otherwise specifically qualified.
FIRST CAUSE OF ACTION
(Breach of Written Contract)
(By ___________ against all Defendants)
9. Plaintiff __________ incorporates by reference paragraphs 1 through 8, inclusive, of this Complaint (including all paragraphs of the General Allegations and all paragraphs of all preceding causes of action, if any) as if the same were fully set forth herein.
10. On or about _______, 20__, Plaintiff _________ and Defendant _______ entered into a Franchise Agreement as franchisees and franchise owners with _______________ of California & Hawaii, Inc., a California corporation (“________________”). The franchise business was then conducted by Plaintiff __________.
11. At or about the time the _________ Franchise Agreement was executed, ________ and _______ were each equal shareholders of ______, each owning 1,000 shares of the issued and outstanding common voting stock of ___________.
12. In the fall 20__ Defendant _____ transferred all of his shares of stock of _____ to Plaintiff _______________.
13. Thereafter, a dispute arose between __________ and ______. On or about ______, 20__, Defendant _________ filed an action in _________County Superior Court entitled ______ v. _____________, _______________.
14. On or about _______, 20__, Plaintiff ___________ and Defendant _____ entered into a written Settlement and Mutual Release agreement (“Settlement Agreement”) in regard to the above civil action then pending between them. A true and correct copy of the Settlement Agreement is attached hereto as Exhibit “1” and made a part hereof by this reference.
15. Pursuant to the Settlement Agreement, Defendant_________ agreed that he would “cooperate as necessary to fully and completely transfer all aspects of the business [________] to [_______________], including, but not limited to, those steps necessary to transfer all ________ franchise rights” under the________________ Franchise Agreement.
16. Plaintiff___________ has fully performed all conditions, covenants, and promises to be performed on the part of Plaintiff _____________under the Settlement Agreement between Plaintiff________________ and Defendant.
17. Although Plaintiff ___________ has demanded that Defendant perform on his part by executing documents transferring and releasing his interest in the business of __________ and franchise, Defendant ________ has failed and refused, and continues to fail and refuse to take any steps necessary to fully and completely transfer all aspects of the business of _____________ to _______________ and to release and transfer all __________ franchise rights under the ________ Franchise Agreement.
18. Within the last four years, Defendant ___________ has breached the Settlement Agreement by failing and refusing to take any steps necessary to fully and completely transfer all aspects of the business to __________ and release and transfer all ___________ franchise rights under the ___________ Franchise Agreement.
19. As a proximate result of the breach of the Settlement Agreement by Defendant ______, as herein alleged, Plaintiff __________ has been damaged in an amount to be proven at time of trial, which sum is in excess of the jurisdictional amount of this Court.
20. The Settlement Agreement provides in part that “[i]f any party to this Agreement should commence any type of claim, action, or mediation against any other party concerning any matter released by or addressed in this Agreement, in addition to all other damages awarded, the prevailing party shall be entitled to costs and reasonable attorneys’ fees…” Accordingly, Plaintiff _________ is entitled to her attorneys’ fees and costs.
SECOND CAUSE OF ACTION
(By_____________ alone against all Defendants)
21. Plaintiff ________________ re-alleges and reincorporates each and every allegation contained in the General Allegations and all previous paragraphs of all previous Causes of Action this Complaint, inclusive, as though fully set forth herein.
22. The consideration set forth in the Settlement Agreement was fully and fairly bargained for and reflected the fair and reasonable value of the performance by Defendant ___________, i.e., his taking any steps necessary to fully and completely transfer all aspects of the business of ______________ to ______________ and to release and transfer all ___________ franchise rights under the ________ Franchise Agreement, at the time the Settlement Agreement was entered into and the Settlement Agreement was and is, as to Defendant ___________, just and reasonable.
23. Plaintiff ___________________ has fully performed all conditions, covenants, and promises to be performed on the part of Plaintiff _____________ under the Settlement Agreement.
24. The act of completely transferring all aspects of the business of __________ to __________ and to release and transfer all ___________ franchise rights under the ____________ Franchise Agreement on the part of Defendant ___________ is unique and, therefore, Plaintiff _______________ may have no other adequate remedy at law.
25. Accordingly, Plaintiff ______________ is entitled to specific performance of the _Settlement Agreement on the part of Defendant _______, and to recover attorneys’ fees and costs.
THIRD CAUSE OF ACTION
(By All Plaintiffs Against All Defendants)
26. Plaintiffs, __________, _______, and ______, re-allege and reincorporate each and every allegation contained in the General Allegations and all previous paragraphs of all previous Causes of Action in this Complaint, inclusive, as though fully set forth herein.
27. An actual controversy has arisen regarding the ownership of shares of _______ by Plaintiffs, ___________ and _______, the ownership of the business of ______, and the franchise rights under the ___________ Franchise Agreement, by reason of the failure and refusal of Defendant _______ to take any steps necessary to fully and completely transfer all aspects of the business of _______ to _________ and to release and transfer all ________ franchise rights under the Franchise Agreement.
28. By reason of the foregoing controversy, Plaintiffs, and each of them, respectfully request that the Court make a judicial determination that: (a) Defendant ______ does not own any shares of stock of _______ and does not possess any other interest in, or claims to, said shares of stock; (b) Defendant _______ possesses no ownership of, interest in, or claims to the business of ________; (c) Defendant _______ possesses no ownership of, interest in, or claims to the ________ franchise rights under the ____________ Franchise Agreement; (d) by reason of his release and transfer of all rights to pursuant to the terms of the Settlement Agreement, Defendant _____ does not possess, and may not assert any claims whatsoever against __________, ______, _______, or ________ with regard to the ownership of shares of stock of ______, the business of ______, or the ____________ franchise rights under the ____________ Franchise Agreement.
29. Such a judicial determination is necessary at this time in order for Plaintiffs, and each of them, to resolve and settle their disputes as expressed in that certain civil action filed in __________County Superior Court entitled ______________ v. ______________. Plaintiffs _________, _______, and Pacific have entered into a settlement agreement in the above captioned case, which settlement is contingent upon Defendant _____ having fully and completely transferred all aspects of the business of ________ to ___________ and his release and transfer of all ____________ franchise rights under the Franchise Agreement.
30. Plaintiffs, and each of them, are informed and believe, and on that basis allege, that Defendant _____ has taken a contrary position and has acted in a manner such that he asserts that he has an interest in the shares of stock of _______, the business of ______, and the _______ franchise rights under the _____________ Franchise Agreement, all of which will likely result in irreparable detriment to Plaintiffs.
WHEREFORE, Plaintiffs individually and collectively pray as follows with regard to each of the above causes of action which may be asserted by the one or more of the various Plaintiffs:
AS TO THE FIRST CAUSE OF ACTION:
1. For general and specific damages according to proof at time of trial;
2. For attorneys’ fees and costs according to proof;
3. For interest as allowed by law; and
4. For cost of suit herein.
AS TO THE SECOND CAUSE OF ACTION:
1. For specific performance directing Defendant ____________ to promptly execute such reasonable documents and instruments and promptly perform such reasonable acts as may be required to fully and completely transfer all aspects of the business of ___________ to _________ and to release and transfer all _________ franchise rights under the Franchise Agreement;
2. For attorneys’ fees and costs according to proof;
3. For interest as allowed by law; and
4. For cost of suit herein.
AS TO THE THIRD CAUSE OF ACTION:
1. For a judicial determination that:
(a)Defendant ______ does not own any shares of stock of ______ and does not possess any other interest in, or claims to, said shares of stock; (b) Defendant _______ possesses no ownership of, interest in, or claims to the business of ___________;
(c)Defendant ________ possesses no ownership of, interest in, or claims to the ________________ franchise rights under the ___________ Franchise Agreement; and
(d)by reason of his release and transfer of all rights pursuant to the terms of the Settlement Agreement, Defendant __________ does not possess, and may not assert any, any claims whatsoever against __________, ________, _________ , or _____________with regard to the ownership of shares of stock of ______________, the business of _________, or the _________ franchise rights under the ___________ Franchise Agreement.
2. For such ancillary orders and decrees as may be necessary to implement, effectuate, carry out, and enforce said judicial determination; and
3. For such other and further relief as the court deems just.
AS TO ALL CAUSES OF ACTION:
1. For attorneys’ fees as applicable;
2. For costs of suit incurred herein; and
3. For such other and further relief as the court deems just and proper.
A Professional Law Corporation
Attorneys for Plaintiff,
Stanton T. Mathews’ trial practice through the last 20 years has been focused on the representation of injured victims of personal, corporate and governmental negligence and wrongdoing. He was trial counsel on the first successful case for fraud against a general aviation manufacturer in U.S. history. He prevailed in a case against the LAPD for the unlawful use of a nightstick just months before the same department successfully defended itself for its officers’ use of their nightsticks in the Rodney King case. Mr. Mathews brought in one of the first verdicts in OrangeCounty involving a third-party attack (attempted rape/murder) on the premises of a nationwide realty firm.
Kevin Lancaster practices in the areas of catastrophic industrial injury, premises liability, professional negligence, products liability and medical malpractice. Mr. Lancaster served as counsel in the reported cases of Ramirez v. Nelson, 44 C. 4th 908 (2008); Medina v. Hillshore Partners, 40 Cal. App. 4th 477 (1995); Nichols v. Keller, 15 Cal. App. 4th 1672 (1993); and Rosso, Johnson, et al. v. Superior Court of San Francisco, 191 Cal. App. 3d 1514 (1987).
They are the authors of, from which this article is excerpted.