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BREACH OF CONTRACTS

Often, clients contact me due to contract disputes, breaches of contract, failure to pay money or failure to deliver the goods or services promised. For commerce to occur, it is critical that people be able to exchange money for goods and services to allow everyone to obtain the goods and services they desire. It is also critical for those providing goods/services to be paid for their labor and materials.

Dealing with parties who have breached contracts is a big part of our business and we can deal with it from the stage of negotiating a resolution before any court filing, to court filing should informal negotiations prove fruitless. We advise clients with an eye to practical solutions based on the amount at issue and the potential solutions.

Some clients contact us after they have a contract dispute. Sometimes we are still able to resolve their problems and sometimes the delay has made the ability to assist the potential client much more difficult. Those clients who wish to minimize their disputes will often use an attorney proactively to review potential contracts that are of sufficient magnitude to warrant it. The question then arises, what is a large enough contract to contact an attorney about? One suggestion is contracts worth $10,000 should be reviewed by an attorney. Why? Because individuals can sue for contracts up to $10,000 in small claims in California.

The $10,000 threshold is also large enough that it makes sense to have an attorney review such a contract. Sometimes, I’ll review smaller value contracts, but generally the contracts I deal with are for larger amounts. Of course, this dollar threshold might be too low for some businesses that have millions in revenue. In that case, I give the advice that if the deal went bad and you would call an attorney, then a client should call before it goes bad.

Breach of contract disputes come from a variety of sources. Some examples are people who sell high-end or expensive equipment, like factory machines, servers, vehicles, homes, businesses and are not paid for those items. Other times, it is a lack of payment for services, such as software development, contract labor, professional services (such as lawyers, doctors). Many disputes also revolve around franchise businesses such as trying to exit or enter into a franchise agreement. Real estate can also come up as a source of breach of contracts from both a landlord and tenant point of view in terms of failure to pay rent.

Has your firm handled breach of contract cases involving businesses?

Yes.  Our firm handles breach of contract cases on a regular basis.  Although we are based in San Jose and most of our cases are in Santa Clara County Courts, we have also handled cases in Alameda County, San Mateo County, San Francisco County, and Contra Costa County in the local area.  Due to technology and phone court appearances and electronic filing, even handling a case far from our office is not a problem.  Breach of contract cases come about in various forms, here are some examples of common types of cases that we see.

  • Nonpayment for Goods/services.

A common scenario is a business delivers goods/services and is not paid by the customer.  This non-payment is a very common scenario.  We have represented both the Plaintiffs (the party filing a lawsuit) and the Defendant (the party being sued).

  • Nondelivery of goods/services or defective products/services.

Another common scenario is a failure to deliver the goods/services promised or problems with the goods or services.

  • Royalty Agreements

We have also dealt with breaches of license agreements for intellectual property, like failure to pay royalties.

  • Lease Agreements for Commercial Property

Similarly, breach of contract cases involving real estate (usually commercial properties) for non-payment of rent or defending claims for damages allegedly caused by the tenant.

  • Breach of Shareholder Agreement.

Failure to pay profits to a shareholder is a legal claim that we have dealt with.

  • Breach of a Promissory Note.

Lending money and not being repaid is a huge cause of legal issues.  So much so, we have written a whole blog entry about Loans, click here.

Thinking about making a loan?

DON’T DO IT.  This is the simple answer.  I get calls and emails from existing and potential clients (before and after) money has been lent to either businesses or relatives all the time.  The number of legal disputes caused by individuals or small businesses lending money is quite high.
Here are common situations that I see.

  • Lending money to a relative because they are unemployed.
  • Lending money to a business.
  • Lending money to invest in a business.

The problem with most of these situations is that often the lender is unaware of how to determine whether they are making an educated decision to loan money or in reality making a gift.
Here are some Common Red Flags that might be cause for concern when lending money.

For Individuals:

  • Banks or other professional lenders refuse to lend money.
  • They are past due on bills, credit cards, in foreclosure.
  • They are unemployed.
  • They promise to return the money in under 1 year.
  • They promise more than 10% interest over a year (may also be an improper interest rate unless an exception applies in California).
  • The Parties are in a romantic relationship.
  • The Parties are in an employer/employee relationship (a whole different set of rules applies here).
  • They don’t provide you with tax returns, paystubs, or banking information to see their income, assets or liabilities.
  • Lawsuits or bankruptcy filings.
  • No security (real estate is best) is also a concern.

For Businesses:

  • Business has been open for less than 3 years.
  • Business does not have (or does not provide) full financial statements and tax returns.
  • Business does not have bank statements to support financial statements.
  • Business owner refuses to personally guarantee money lent to be repaid.
  • Business is not profitable.
  • Lawsuits or bankruptcy filings.
  • No security (real estate is best) is also a concern.
  • No specific need for the money, meaning the borrower simply tells you it will be used for general corporate purposes.
  • The business is private.
  • The businesses has less than 20 employees.

Lender Red Flags.
-This list is intended to list out the type of persons/companies that should not be lending money to others.

This means that for individuals you need to make $200,000 or more for the last 2 years and expect the same for this year ($300,000 if married) or you have $1 million in net worth excluding your primary residence.

  • You need the money back in under 2 years, often people promise that you will get the money back in 6 months or less and this is a red flag.
  • You need the money for expected expenses or daily living.
  • Do not lend more than you can afford to lose.
  • If the money lent would be more than 50% of your annual income.

Still want to lend someone money?

Then give us a call, we can discuss your situation with you.  Ultimately, it will be your decision, but having an attorney review the proposed loan, any proposed security, the borrower’s financial status can often provide important insight.  Many lawsuits that I have seen would have been avoided or at least the risk minimized had a borrower consulted an attorney before lending money.

Have you lent someone money and they failed to repay you?

We can discuss your options with you, including trying to seek resolution of the claims before filing suit (assuming the other party will work with us).  We can also advise on next steps should informal resolution not work and a lawsuit is necessary.  Please be aware that the law limits the time you have to file suit depending on the type of claims that would be made.  The statute of limitations must be determined on an individual basis, but generally if there is no written agreement, then in California you are likely to have 2 years to sue, and if there is a written agreement 4 years.

*Please note that this information was reasonable accurate at time of publication, but subsequent laws may change.  Consult a lawyer for current information.