Contract and Business Disputes

Most business disputes are contract disputes, and most contract disputes are decided by a handful of unglamorous questions: what did the writing actually say, who performed, what was foreseeable, and which limitations period applies. The answers are usually available early, which is why an accurate assessment at the outset is worth more than an aggressive one.

ROMO Law Group handles business and civil contract litigation in California — breach of contract and related claims, business and partnership disputes, and the tort and statutory claims that typically accompany them.

What a breach of contract claim requires

California's pattern jury instruction sets out six elements: that the parties entered into a contract; that the plaintiff did all, or substantially all, of the significant things the contract required (or was excused); that all conditions required for the defendant's performance occurred (or were waived or excused); that the defendant failed to do something the contract required or did something it prohibited; that the plaintiff was harmed; and that the breach was a substantial factor in causing that harm.

That last element is frequently omitted from summaries of California law, and it is often where cases are actually contested — not whether a breach occurred, but whether it caused the loss the plaintiff is claiming.

When the agreement has to be in writing

Civil Code section 1624 requires a writing subscribed by the party to be charged for, among others: an agreement that by its terms cannot be performed within a year; a promise to answer for the debt or default of another; a lease of real property for more than a year or a sale of real property or an interest in it; an agreement employing a broker to buy, sell, or lease real estate for compensation; an agreement not to be performed during the promisor's lifetime; a purchaser's promise to pay indebtedness secured by a deed of trust on the property unless assumption is specifically provided for in the conveyance; and a commitment by a person in the lending business to loan or extend credit of more than $100,000 not primarily for personal, family, or household purposes.

An agent's authority to sign for a principal in a real property transaction must itself be in writing.

Part performance and estoppel remain available as equitable exceptions, most often in real property cases where the party took possession, paid consideration, and made substantial improvements. Full performance by one party generally takes an agreement out of the one-year provision.

Deadlines

Two points that change outcomes:

Delayed discovery is not the default in contract. A contract claim ordinarily accrues on breach, not on discovery. California courts have applied the discovery rule in narrower settings — notably where a breach is committed in secret and the harm is not reasonably discoverable, and in professional services relationships (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415).

Contractual shortening is enforceable, within limits. Parties may agree to a shorter period than the statute provides, so long as it is not so unreasonable as to show imposition or undue advantage. But where the delayed discovery rule applies as a matter of public policy, parties cannot contract around discovery-based accrual, and shortened periods remain subject to unconscionability review.

The implied covenant, and what it will not do

Every California contract includes an implied covenant that neither party will do anything to unfairly interfere with the other's right to receive the benefits of the agreement. It polices the exercise of discretion a contract confers and bad-faith conduct that frustrates the bargain without literally violating a clause. The standard is objective.

Its limits are as important as its content. The covenant cannot create obligations inconsistent with the contract's actual terms — it cannot add duties the parties did not agree to or override an express right. And a covenant claim that merely restates the express breach claim is routinely stricken as superfluous.

On remedies, California confines tort recovery for breach of the implied covenant essentially to insurance contracts (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654). In an ordinary commercial contract, breach of the covenant yields contract damages only — no emotional distress damages and no punitive damages.

What you can recover

Expectation damages. Civil Code section 3300 sets the measure as the amount that will compensate for all the detriment proximately caused by the breach, or which in the ordinary course of things would be likely to result from it. That second clause is California's codification of the foreseeability limitation — consequential damages arising from circumstances peculiar to the plaintiff are recoverable only if those circumstances were known or should have been known at the time of contracting. In commercial cases, what the breaching party was told about the plaintiff's situation at formation is a standard discovery target for exactly this reason.

Certainty. Civil Code section 3301 bars damages that are not clearly ascertainable in both nature and origin. The fact of damage must be certain; the amount need not be proved with precision.

Lost profits. Recoverable, but subject to section 3301 and to judicial gatekeeping of expert opinion. Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747 confirmed the trial court's obligation to exclude expert testimony based on speculative matter or unsupported reasoning — which in practice is where ambitious lost-profits claims by early-stage businesses tend to fail.

Mitigation. A plaintiff cannot recover for harm the defendant proves could have been avoided with reasonable efforts or expenditures. The burden is on the defendant, reasonableness is judged in light of the circumstances the plaintiff faced at the time, and the costs of reasonable mitigation efforts are themselves recoverable.

Rescission and restitution. Civil Code section 1689 permits rescission where consent was obtained through mistake, duress, menace, fraud, or undue influence; where consideration fails materially or becomes void; and on other enumerated grounds. Section 1692 is unusually favorable: a claim for damages is not inconsistent with a claim for rescission, and the aggrieved party is to be awarded complete relief including restitution and consequential damages, subject only to a bar on duplicate or inconsistent recovery. If the court finds the contract was not rescinded, it may still grant other relief to which a party is entitled.

Specific performance and injunctive relief. Available under Civil Code sections 3384 through 3395, subject to the requirements that the terms be sufficiently certain, that consideration be adequate and the contract just and reasonable as to the party to be charged (section 3391), and that the party seeking enforcement have fully and fairly performed the conditions precedent (section 3392). Section 3390 bars specific enforcement of personal service obligations and of agreements requiring a third party's consent.

Liquidated damages

California reversed its old rule in commercial contracts, and much of what is written online still describes the pre-1977 position.

Under Civil Code section 1671(b), a liquidated damages provision is valid unless the party seeking to invalidate it establishes that it was unreasonable under the circumstances existing at the time the contract was made. The burden is on the challenger, and reasonableness is judged as of contracting rather than with hindsight about actual loss.

The presumption flips for two consumer categories identified in section 1671(c): a contract for the retail purchase or rental of personal property or services primarily for personal, family, or household purposes, and a lease of real property for use as a dwelling. In those cases, section 1671(d) makes the provision void except where, from the nature of the case, it would be impracticable or extremely difficult to fix actual damage.

Attorney's fees

California follows the American Rule, so fees come from a contract or a statute. Civil Code section 1717 governs contractual fee clauses and does two things worth knowing.

First, it makes one-sided clauses reciprocal: the party prevailing on the contract is entitled to reasonable fees whether or not they are the party specified in the clause. A waiver of section 1717 in the contract is void.

Second, it defines the prevailing party as the one who recovered greater relief on the contract — and expressly permits the court to determine there is no prevailing party, which is a meaningful risk in mixed-result commercial cases. Where an action is voluntarily dismissed or settled, there is no prevailing party for section 1717 purposes.

Section 1717 reaches only actions "on a contract." Where a fee clause is drafted broadly enough to cover tort claims arising out of or relating to the agreement, fees on those claims are recoverable as a matter of contract rather than under section 1717 — which also means section 1717's protections, including the dismissal rule, do not apply to that portion (Santisas v. Goodin (1998) 17 Cal.4th 599). Narrow and broad clauses each carry a tradeoff, and it is worth choosing deliberately when drafting.

Claims that travel with a contract case

Fraud and negligent misrepresentation

Misrepresentation of a material fact, knowledge of falsity (or, for the negligent version, no reasonable ground for believing it true), intent to induce reliance, justifiable reliance, and damage. Both must be pleaded with specificity. Fraud runs three years from discovery under section 338(d); for negligent misrepresentation the courts are split between that period and the two-year period of section 339(1), so the shorter period should be assumed until the specific claim is analyzed. Fraud is the standard companion claim because it supports punitive damages under Civil Code section 3294, which a covenant claim cannot.

Interference with contract and with prospective economic advantage

Intentional interference with an existing contract requires a valid contract, the defendant's knowledge of it, intentional acts designed to induce breach or disruption, actual disruption, and damage. Interference with a prospective economic relationship requires more: under Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376 the plaintiff must plead and prove conduct wrongful by some legal measure other than the interference itself. On intent, Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134 holds that specific intent to disrupt is not required — it suffices that the defendant knew disruption was substantially certain to result.

Unfair competition — Business and Professions Code section 17200

Reaches any unlawful, unfair, or fraudulent business act or practice. Its value is the four-year period under section 17208, which applies even where a borrowed predicate statute carries a shorter one. Its limit is remedial: under section 17203 the available relief is restitution and injunctive relief only. There are no damages, and nonrestitutionary disgorgement is unavailable in an individual action.

Promissory estoppel and quantum meruit

Pleaded in the alternative where a contract fails for want of consideration or under the statute of frauds. Quantum meruit permits recovery of the reasonable value of services rendered at the defendant's request. Neither is available where an enforceable express contract governs the same subject matter.

Business and partnership disputes

Where the dispute is between owners rather than counterparties, the governing statutes change and so does the realistic outcome.

Corporations. Corporations Code section 1800 permits involuntary dissolution on grounds including director deadlock, shareholder deadlock or internal dissension so severe the business cannot be conducted with advantage, persistent and pervasive fraud, mismanagement or abuse of authority by those in control, and — for corporations with 35 or fewer shareholders of record — where liquidation is reasonably necessary to protect the complaining shareholder's rights. Standing generally requires 33⅓% or more of the outstanding shares, though any shareholder of a close corporation may petition.

Limited liability companies. Corporations Code section 17707.03 permits judicial dissolution on a manager's or member's petition where it is not reasonably practicable to carry on the business in conformity with the articles or operating agreement, where dissolution is reasonably necessary to protect the complaining members, where the business has been abandoned, where management is deadlocked or subject to internal dissension, or where those in control have engaged in or countenanced persistent fraud, mismanagement, or abuse of authority. Section 17707.03(c) contains a parallel buyout mechanism at fair market value with three disinterested appraisers, and provides that purchasing members who fail to pay on time face judgment for the moving party's costs and attorney's fees.

Alongside these, partners, members, managers, officers, directors, and majority shareholders in a close corporation owe fiduciary duties. Those claims matter because they carry remedies a contract claim does not — punitive damages, constructive trust, and disgorgement.

Non-competes and restrictive covenants

Business and Professions Code section 16600 voids every contract restraining anyone from engaging in a lawful profession, trade, or business, to the extent of the restraint, subject to narrow statutory exceptions for the sale of a business and for partnership and LLC dissolution. California does not apply a reasonableness balancing test — the invalidity is categorical.

Two 2024 additions extended this significantly:

• Section 16600.5 (added by SB 699, effective January 1, 2024) provides that a contract void under the chapter is unenforceable regardless of where and when it was signed; prohibits an employer from attempting to enforce one or from entering into one; makes either a civil violation; and creates a private right of action for injunctive relief, actual damages, or both, with attorney's fees and costs to a prevailing employee — a one-way fee shift.
• Section 16600.1 (added by AB 1076, effective January 1, 2024) makes it unlawful to include a non-compete clause or require an employee to enter one that does not satisfy a statutory exception, and required employers to notify affected current employees and former employees employed after January 1, 2022 — by individualized written communication to the last known physical and email address — that the clause is void, by February 14, 2024. A violation is an act of unfair competition, which routes it into the four-year unfair competition framework.

The February 2024 notice deadline has passed and cannot be satisfied retroactively. Section 16600.5's rule that the void-ness travels regardless of where the contract was signed is also the answer to an out-of-state choice-of-law or forum clause pointing at a non-compete-friendly jurisdiction.

Arbitration clauses

Written arbitration agreements are enforceable under the California Arbitration Act and, for contracts involving interstate commerce, under the Federal Arbitration Act. The principal defense is unconscionability, evaluated on a sliding scale of procedural and substantive unfairness.

One recent development is worth flagging because it changed a rule many people still rely on. Code of Civil Procedure sections 1281.97 and 1281.98 provide that a drafting party who fails to pay arbitration fees within 30 days of the due date is in material breach and waives the right to compel arbitration. Courts of Appeal had read this as an automatic, no-excuses forfeiture. In Hohenshelt v. Superior Court (2025), the California Supreme Court held the statutes are not preempted by the FAA but construed them narrowly to avoid preemption, holding that background relief-from-forfeiture doctrines still apply and that a missed payment is not an automatic forfeiture where the delay was excusable. Content written before August 2025 describing this as an unforgiving trap is now out of date.

Separately, Civil Code section 1670.15, effective January 1, 2026, narrows the permissible scope of dispute resolution provisions in consumer-use agreements to disputes involving the use, payment, or provision of the good, service, money, or credit arising from the transaction. It applies to agreements entered into on or after that date, though the statute contains no express applicability clause and commentators read it as prospective only. Federal preemption questions about it also remain unresolved.

Matters we handle

What we look at first

1. The writing, in full — including exhibits, amendments, and the documents it incorporates by reference.
2. The fee clause and the dispute resolution clause. These usually determine whether litigation is economically rational before anything else does.
3. Performance evidence. Substantial performance and satisfaction of conditions are elements you have to prove, not assumptions.
4. What the other side knew at signing. Foreseeability of consequential damages is fixed at formation.
5. The date of breach, and whether the agreement is written, oral, or a combination — which decides between four years and two.

Page current as of August 2026.

Frequently asked questions