1. Identify the Contractual Obligation in Dispute
Under California law, a breach of contract claim generally requires an existing contract, the claimant's performance or a legal excuse for nonperformance, the other party's breach, and resulting damages. A dispute review should therefore consider not only what the other party allegedly failed to do, but also whether the claimant satisfied any conditions tied to its own performance.
Depending on the transaction, the disputed obligation may involve payment, delivery, service levels, acceptance standards, pricing, confidentiality, renewal, or termination.
Determine Which Documents Control
The signed agreement may not contain every operative term. A master agreement can establish the general relationship while a statement of work, purchase order, schedule, or amendment supplies the price, quantity, deadline, or performance standard at issue.
The task is to separate documents that form or modify contractual duties from routine business communications.
Account for Changes during Performance
Commercial relationships often change after signing. The parties may revise delivery dates, pricing, specifications, or the scope of work.
Emails and other communications can matter, but they should not automatically be treated as either binding amendments or legally irrelevant. Their effect can depend on the agreement's modification provisions, the authority of the people involved, applicable law, and the parties' conduct.
California modification rules also differ by transaction type. General written contracts may implicate Civil Code § 1698, while contracts for the sale of goods may instead be governed by Commercial Code § 2209.
2. Compare the Contract with the Performance Record
The written terms should next be placed beside the records showing what occurred. This helps distinguish an actual failure to perform from a disagreement over what the agreement required.
A useful chronology may include:
- Contract and amendment dates
- Purchase orders or work authorizations
- Shipment, delivery, or completion records
- Invoices and payment deadlines
- Inspection or rejection records
- Default, cure, or termination notices
Recurring transactions may require more context. A disputed shipment, for example, may need to be read with delivery schedules, inspection rights, and acceptance provisions in the parties' supply agreements.
Separate Nonperformance from Contract Interpretation
Not every commercial disagreement establishes the same type of breach. One party may contend that work failed to meet an agreed specification while the other argues that the specification never required the disputed work. Payment may also depend on acceptance, completion, or another contractual condition.
The agreement and performance record should establish what was required before the consequences of nonperformance are assessed.
3. Review Default, Cure, and Termination Terms
A missed obligation does not necessarily permit immediate termination. Many business contracts establish their own default procedures.
The agreement may specify what constitutes default, whether written notice is required, where notice must be sent, and whether the defaulting party receives time to cure. Failure to follow those provisions can create a separate dispute over whether termination was effective.
Businesses should retain the notice, proof of delivery, responses, and records of any attempted cure.
Termination also may leave certain obligations in place. Depending on the agreement, accrued payment duties, confidentiality provisions, return-of-property requirements, indemnification terms, audit rights, and dispute-resolution clauses may survive.
These issues can become central if the dispute develops into a breach of contract suit.
4. Measure Damages from the Contract Failure
Proving nonperformance and proving recoverable loss are separate questions. California Civil Code § 3300 generally measures contract damages by the detriment proximately caused by the breach or likely to result from it in the ordinary course of events.
Records supporting a damages claim may include unpaid invoices, replacement purchases, additional performance costs, accounting records, or other evidence connecting a financial loss to the alleged breach.
Examine Contractual Limits on Recovery
Commercial agreements may contain liability caps, exclusions of certain losses, indemnification provisions, or liquidated-damages clauses. Those provisions require their own enforceability analysis.
California Civil Code § 1668 can make unenforceable contractual provisions that have the object of exempting a party from responsibility for its own fraud, willful injury, or violation of law. A liability limitation therefore should not be treated as automatically enforceable merely because it appears in the agreement.
Liquidated damages are governed by a different rule. Under Civil Code § 1671, a liquidated-damages provision outside specified consumer and residential contexts is generally valid unless the party challenging it establishes that the provision was unreasonable under the circumstances existing when the contract was made.
A more detailed damages analysis may overlap with the principles governing damages for breach.
5. Check the Forum and Filing Deadline
Before filing a claim, a business should identify the governing law, forum, arbitration provisions, and applicable limitations period. A company's San Jose location alone does not determine where every dispute must proceed.
Distinguish Contractual Arbitration from Court ADR
A contract may require private arbitration or mediation before or instead of litigation. A written arbitration agreement involving interstate commerce may also fall within the Federal Arbitration Act in addition to applicable state arbitration law.
Private contractual arbitration is different from judicial arbitration or other ADR procedures available after a civil case enters court.
If a contract dispute is properly filed in Santa Clara County, the Superior Court handles contract and damages claims through its civil division and also provides ADR procedures such as mediation and judicial arbitration.
Apply the Correct Limitations Rule
California Code of Civil Procedure § 337 generally provides four years for an action founded on a written contract. Section 339 generally provides two years for a contractual obligation not founded on a written instrument.
Sales of goods require separate analysis. California Commercial Code § 2725 generally provides four years for an action for breach of a sales contract. The original agreement may reduce that period to no less than one year, but may not extend it.
Accrual, tolling, warranty rules, and the nature of the claim can affect the calculation. The contract type and alleged breach should therefore be identified before relying on a general deadline.
6. Frequently Asked Questions
Should a business preserve records before a lawsuit is filed?
Yes. Once litigation or arbitration is reasonably anticipated, relevant business records should generally be preserved rather than edited, overwritten, or selectively deleted. Contracts, amendments, invoices, delivery records, notices, emails, and documents supporting claimed losses may later become relevant evidence.
Can a business contract require the losing party to pay attorney fees?
Yes. Some commercial contracts provide for attorney fees in an action to enforce the agreement. California Civil Code § 1717 can also make a contractual fee provision reciprocal in an action on the contract, subject to the statute's requirements and the terms of the agreement.
Does sending a demand letter extend the deadline to sue?
A demand letter should not be assumed to stop or extend a statute of limitations. Any statutory tolling rule, contractual provision, or tolling agreement must be analyzed separately. A business should calculate the filing deadline independently rather than treat negotiations as an automatic extension.
28 Oct, 2026
