April 2018 Update
Revenue and Taxation Code §23304.1 provides that any contract made in California by a taxpayer during the time that the taxpayer’s corporate powers, rights, and privileges have been suspended or forfeited in accordance with Rev & T C §23301, §23301.5, or §23775 is voidable in accordance with Rev & T C §23304.5 at the instance of any party to the contract other than the taxpayer. “This means the suspended corporation cannot sell, transfer or exchange real property in California, and contracts entered into during the time of suspension are voidable … through legal action.” Casiopea Bovet, LLC v Chiang (2017) 12 CA5th 656, 662. See §2.70B.
In Western Sur. Co. v La Cumbre Office Partners, LLC (2017) 8 CA5th 125, the court held that under Corp C §17703.01(d), an LLC that was the sole manager of another LLC did not have actual authority to execute an indemnity agreement on behalf of LLC that it managed. However, the agreement was valid and binding because the other party did not have actual knowledge of the manager’s lack of authority. See §2.79.
In general, consent of the parties, or mutual assent, is an essential element of any valid contract. Harshad & Nasir Corp. v Global Sign Sys., Inc. (2017) 14 CA5th 523, 537; Esparza v Sand & Sea, Inc. (2016) 2 CA5th 781, 788. See §3.2.
Whether mutual assent exists—whether there has been a meeting of the minds—is determined by objective rather than subjective criteria. Harshad & Nasir Corp. v Global Sign Sys., Inc. (2017) 14 CA5th 523, 537; Esparza, 2 CA5th at 788. See §3.4.
One example of provisions that are void for illegality are loan provisions that violate the usury law. Hardwick v Wilcox (2017) 11 CA5th 975. See §3.37.
Agreements that California courts have ruled violative of public policy include an agreement to arbitrate claims for public injunctive relief under the Consumers Legal Remedies Act (CLRA) (CC §§1750–1784), the unfair competition law (UCL) (Bus & P C §§17200–17210), or the false advertising law (Bus & P C §§17500–17509). McGill v Citibank, N.A. (2017) 2 C5th 945, 951. See §3.40A.
In Esparza v Sand & Sea, Inc., supra, the court held that an employee handbook with an arbitration clause did not create an agreement to arbitrate when “[t]he welcome letter at the beginning of the handbook explicitly stated that ‘this handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.’” 2 CA5th at 788. See §3.51.
In Norcia v Samsung Telecommunications Am., LLC (9th Cir 2017) 845 F3d 1279, 1286, the Ninth Circuit held that a mobile phone buyer was not bound by an arbitration provision in a phone’s “in-the-box” warranty brochure; there was no evidence that the buyer assented to the provision; the buyer’s silence did not constitute consent. See §§4.22, 4.64.
In Meyer v Uber Technols., Inc. (2d Cir 2017) 868 F3d 66, applying California law, the Second Circuit held that Uber’s smartphone app provided reasonably conspicuous notice of Uber’s terms of service. Notice of the terms was provided simultaneously with a user’s registration, and a reasonably prudent user would understand that the terms related to creation of a user’s account. The user in this case unambiguously manifested his consent to the terms of service by clicking the registration button, signing up for an account, and giving Uber his credit card information. See §4.65.
Civil Code §1636 expresses the paramount rule of contract interpretation—that “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” See Mountain Air Enters., LLC v Sundowner Towers, LLC (2017) 3 C5th 744, 752; Medina v South Coast Car Co., Inc. (2017) 15 CA5th 671, 682; Wind Dancer Prod. Group v Walt Disney Pictures (2017) 10 CA5th 56, 68. See §5.5.
In Iqbal v Ziadeh (2017) 10 CA5th 1, 12, the court applied CCP §1859 to a release and held that, even though the plaintiff expressly acknowledged that the release was a general release and waived his rights under CC §1542, the general provisions did not supersede the specific provisions of the release, which limited its scope to certain specified classes of persons that did not include the defendant. See §5.18.
If a written contract is not integrated (i.e., is not the final and complete agreement of the parties), then the parol evidence rule does not prohibit the introduction of extrinsic evidence concerning any matter on which the agreement is silent and which is not inconsistent with its written terms. Kanno v Marwit Capital Partners II, L.P. (2017) 18 CA5th 987, 999. See §5.33.
A merger or integration clause is intended to confirm that no previous understandings or agreements exist between the parties other than those contained in the instant writing. The inclusion of an integration clause in a contract may be conclusive on the issue of integration. It will be given great weight, although it may not in itself be determinative. Kanno,18 CA5th at 1001 (presence of integration clause is not conclusive but is a factor). See §5.36.
Although evidence of course of performance may be relevant to determining the parties’ intent at the time of execution of a written contract, that evidence cannot be used to contradict or vary the unambiguous terms of the contract. Wind Dancer Prod. Group, 10 CA5th at 72. In the Wind Dancer case, the court held that evidence of the defendant’s prior course of conduct raised triable issues of material fact with respect to equitable estoppel. See §5.42.
In Farrar v Direct Commerce, Inc. (2017) 9 CA5th 1257, 1273, the court held that an arbitration provision with a carve-out for any claims relating to a confidentiality agreement between the company and the employee was unconscionable, but severable. In contrast, in Magno v The College Network, Inc. (2016) 1 CA5th 277, 292, the court held that an arbitration clause was not severable when it was “permeated” by several unconscionable terms; some provisions, including the arbitrator selection procedure, could only be remedied by rewriting the entire agreement. See §5.70.
In Poublon v C.H. Robinson Co. (9th Cir 2017) 846 F3d 1251, the Ninth Circuit held that an arbitration clause with a waiver of representative claims was not substantively unconscionable even though the waiver was not enforceable under California law. Further, the provisions regarding venue, confidentiality, limitations on discovery, sanctions, and unilateral modification all favoring the defendant were not substantively unconscionable. See §§5.77, 9.44.
In McGill v Citibank, N.A., supra, the California Supreme Court held that an agreement to arbitrate claims for public injunctive relief (i.e., “relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public”) under the Consumers Legal Remedies Act (CLRA) (CC §§1750–1784), the unfair competition law (UCL) (Bus & P C §§17200–17210), or the false advertising law (Bus & P C §§17500–17509) was invalid and unenforceable. 2 CA5th at 961. See §§5.78, 9.47B, 9.48.
In Betancourt v Prudential Overall Supply (2017) 9 CA5th 439, 445, the court held that an employee’s PAGA claims were not arbitrable because the state, the real party in interest, was not bound by the employee’s predispute agreement to arbitrate. See §§5.78, 9.47B.
In Hardwick v Wilcox (2017) 11 CA5th 975, the court ruled that a unilateral general release of a borrower’s claims against a lender did not operate to waive the protections of the California usury laws. Such a waiver would be against public policy and unenforceable. See §5.92.
In Iqbal v Ziadeh (2017) 10 CA5th 1, 10, a personal injury case, the court held, as a matter of law, that a release agreement between a car dealership and the plaintiff, who had been seriously injured while working on a car, did not immunize the car’s owner. There was no evidence that the contractual relationship between the owner and the dealership made the owner an agent or otherwise under the control of the dealership. See §§5.94, 7.64.
If the parties have an express contract of indemnity, the scope of the duty to indemnify must be determined from the contract and not with reference to the doctrine of equitable indemnity, which is an independent doctrine. Oltmans Constr. Co. v Bayside Interiors, Inc. (2017) 10 CA5th 355, 361. See §6.51.
In G & W Warren’s, Inc. v Dabney (2017) 11 CA5th 565, 574, the court held that a guaranty secured only specified obligations; it could not be construed to guarantee obligations arising from other agreements, which were not listed as obligations secured. See §7.74.
The parties to a contract may agree to a shorter “private statute of limitations” applicable to actions between them, provided that the period is not so short as to be unreasonable or to give the party seeking to enforce it an undue advantage. Wind Dancer Prod. Group, 10 CA5th at 73 (incontestability clause providing for 24-month limitations period without benefit of discovery rule was not unreasonable or unenforceable). See §9.5.
Civil Code §1717 has no application if attorney fees are sought as an element of damages on a contract claim. If attorney fees are pled as damages in a breach of contract action, the plaintiff has a right to have a jury determine the amount of attorney fees resulting from its alleged breach. Monster, LLC v Superior Court (2017) 12 CA5th 1214, 1230. See §9.13.
The right to recover attorney fees under CC §1717(a) applies regardless of which party initiates the action. Pacific Custom Pools, Inc. v Turner Constr. Co. (2000) 79 CA4th 1254. As a first step, however, the court must determine whether the parties entered into a contract for payment of attorney fees, and if they did, what was the scope of their agreement regarding fees. Mountain Air Enters., LLC v. Sundowner Towers, LLC, supra. See §9.13.
If one party obtains an unqualified victory in a contract dispute (including a defendant who defeats the plaintiff’s entire claim), that party is considered the prevailing party as a matter of law for purposes of CC §1717. If, however, the results of the litigation are mixed, the court has discretion to determine that no party has prevailed. DisputeSuite.com, LLC v Scoreinc.com (2017) 2 C5th 968, 973 (party that enforced forum selection clause not entitled to attorney fees as prevailing party). In Burkhalter Kessler Clement & George LLP v Hamilton (Jan. 8, 2018, No. G054337) ___ CA5th ___ , 2018 Cal App Lexis 16, the court held that there can be more than one prevailing party if there are more than two parties to a lawsuit involving an alleged breach of a contract and the case involves independent claims that must be separately examined. See §9.17.
In Los Angeles Unified Sch. Dist. v Safety Nat’l Cas. Corp. (2017) 13 CA5th 471, 483, the court held that, because the parties to an arbitration agreement did not expressly agree to apply FAA procedures, California state court procedures applied, and the trial court had authority under CCP §1281.2(c) to deny the motion to compel arbitration based on the possibility of conflicting rulings in pending litigation with third parties. See §9.40.
The courts in both Harshad & Nasir Corp. v Global Sign Sys., Inc. (2017) 14 CA5th 523, 543, and Esparza v Sand & Sea, Inc. (2016) 2 CA5th 781, 788, held that an employee handbook with an arbitration clause did not create an agreement to arbitrate when each handbook expressly stated that the handbook was not intended to be a contract. See §9.41A.
In Baxter v Genworth N. Am. Corp. (2017) 16 CA5th 713, the court held that an arbitration agreement was procedurally unconscionable because it was presented to the employee as a condition of continued employment, with no opportunity to negotiate. See §9.43.
In Baxter v Genworth N. Am. Corp., supra, the court held that provisions in an arbitration agreement restricting communications with other employees, limiting discovery to the extent that would be inadequate to vindicate an employee’s statutory rights, shortening the limitations period to pursue relief for statutory claims, and requiring arbitration of statutory claims before the administrative investigation were substantively unconscionable. See §9.44.
In Jensen v U-Haul Co. of Cal. (Dec. 11, 2017, No. E065887) ___ CA5th ___ , 2017 Cal. App. Lexis 1096, the court held that an arbitration clause in an equipment rental contract was not enforceable against a nonsignatory employee of the company that rented the equipment because the employee was not a third party beneficiary of the contract; there was no indication of any intent to benefit the employee. See §9.50.
The parties themselves may agree to limit the scope of the arbitrator’s authority by expressly providing for review of the award in the arbitration agreement. Harshad & Nasir Corp., 14 CA5th at 535. See §9.52.
In a suit for wrongfully denied disability benefits, prejudgment interest was recoverable only from the time the county retirement board erroneously denied the application for benefits, even though the trial court’s award of benefits was retroactive to an earlier date. Flethez v San Bernardino County Employees Retirement Ass’n (2017) 2 C5th 630. See §10.26.
In general, a liquidated damages provision will be considered unreasonable, and therefore unenforceable, if it does not bear a reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. Whether the parties reasonably estimated the damages that were foreseeable under the circumstances is a question of fact. Krechuniak v Noorzoy (2017) 11 CA5th 713, 723. See §10.42.
Under CC §3275, any contractual provision by which money or property could be forfeited regardless of the actual damage suffered may be unenforceable as a penalty. If a liquidated damages clause is found to be a penalty, the party that has suffered damage may collect only the amount of actual damages it has sustained. Vitatech Int’l, Inc. v Sporn (2017) 16 CA5th 796, 806. See §10.42.
In Guan v Hu (2017) 12 CA5th 406, the court held that, to be entitled to consequential damages under CC §1692, a party who has sought rescission must either be awarded rescissionary relief first (12 CA5th at 417) or have succeeded on a claim for breach of contract (12 CA5th at 419). The plaintiff in Guan had done neither, so the court of appeal reversed the trial court’s judgment in plaintiff’s favor. See §11.57.
In Sanjiv Goel, M.D., Inc. v Regal Med. Group, Inc. (2017) 11 CA5th 1054, the court of appeal held that the trial court properly considered a variety of evidence to determine the reasonable market value of emergency treatment rendered by an interventional cardiologist, including expert testimony concerning fees charged by other physicians for similar emergency services. See §11.72.