What Types of Oral Contracts are Enforceable in California?

There is a widespread misunderstanding that a contract must be “in writing” for it to actually be a contract which can be enforced. To be sure, “get it in writing” is often good advice as a document signed by both parties to a contract is far better evidence that a contract exists than one person’s word against another’s.

But it is not the case that a contract always must be in writing in order for it to be enforceable in court. Except when it does. Which is to say that there are certain types of contracts which must be in writing – or at least evidenced by some other type of record – for those contracts to be enforced.

 

California’s Statute of Frauds

Thus, when thinking about the question of what type of oral contracts (meaning ones not memorialized in a written document) are enforceable, it is actually easier to think about types of contracts MUST be evidenced by a writing to be enforceable. In California, these types of contracts are listed in the state’s Statute of Frauds, written into the state code at Cal. Civ. Code Section 1624.

While the use of the term “frauds” may make you think there has to be some level of deception to trigger the requirements of the law, that is not actually the case. Instead, the Statute of Frauds simply lists those types of documents which must be written or evidenced by a comparable record to be enforceable.

These types of contracts which cannot be enforced as oral contracts include:

  • An agreement that cannot be completed within one year (e.g. an employment agreement that lasts for 18 months, or a lease that lasts for longer than a year)
  • An agreement to answer for the debt or default of another
  • An agreement for the sale of real estate
  • An agreement authorizing a third party (an agent or broker) to engage in a real estate transaction or lease a property for longer than a year
  • An agreement that cannot be performed during the lifetime of the person promising to perform
  • An agreement to pay the mortgage on a property
  • An agreement to lend more than $100,000 or extend credit in the same amount, not primarily for personal, family, or household purposes
  • An agreement for the sale of goods over $500
  • An agreement for the sale or personal property over $5,000

Putting this all together, other types of contracts may indeed be enforceable even if they are only oral contracts. Again, however, there will be the challenge of proving that the oral contract did indeed exist.

 

Exceptions-to-the-California-Statute-of-Frauds

Exceptions to the California Statute of Frauds

That said, even if there is not a contract signed by both parties for a contract listed in the Statute of Frauds, there may be other ways of enforcing the contract. Under California law, a party may still be able to enforce such a contract if:

  • There is evidence of an electronic communications such as a text or phone call which points to the existence of the contract
  • There is a written confirmation by the party seeking to enforce the contract within 5 days of the agreement, and there is not a prompt written objection to the confirmation
  • The party against whom enforcement of the contract is sought sends a written confirmation of the existence of the contract; or
  • The party against whom enforcement of the contract is sought admits to the contract in testimony or in a court pleading

Speak to a California breach of contract attorney for guidance on your particular situation.  

 

Contact the California Breach of Contract Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.

Are Liquidated Damages Clause Enforceable in CA Commercial Real Estate Contracts?

“Liquidated damages” may sound like the name of a long-lost Nirvana b-side, but instead they refer to clauses often buried towards the end of a long contract which purport to state what financial compensation one party must pay another in the event of the breach of a contract.

While liquidated damages have a very long history of appearing in contracts – after all, the whole purpose of a contract is to set out ahead of time what each party should do in the future, and this clause takes it even further to say what each party should do if one doesn’t actually do what is in the rest of the contract – but they also have a very long history of being invalidated by courts.

Why Courts Are Suspicious of Liquidated Damages Clauses

Why do courts so often invalidate liquidated damages clauses? In one respect, courts don’t love it when one party in a contract decides it will take the place of the court in determining what happens in the case of a breach.

But, relatedly, courts look on liquidated damages clause with suspicion, as they can be used as a coercive tool to force a less powerful party to follow through with an obligation against its will because there is a huge penalty hanging over their head, which might indeed be far greater than what a court would award in a breach of contract action.

Liquidated Damages Clauses in CA Commercial Real Estate Contracts

California courts, in particular, are notorious for invalidating contract clauses that, by definition, both parties agreed to, e.g. non-compete clauses in employment agreements. California courts have indeed taken a similar approach to liquidation clauses over the years.

That said, California courts are willing to enforce a liquidated damages provision where it is not reasonable, pursuant to the California civil procedure code, which states, “a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.”

This brings up the question of what is and what is not reasonable. In essence, courts find liquidated damages clauses reasonable where they are actually based on a reasonable attempt to determine what the financial injury would be to the non-breaching party in the case of a breach by the other party. This means looking at the actual money lost by the non-breaching party, as well as associated administrative costs, e.g. the cost associated with finding a similar property, buyer, tenant, etc., to replace the breaching party.

Where courts will not validate such clauses is where they go far beyond what the actual costs of the breach would be and appear to be more of a penalty for the potentially breaching party which induces them not to breach. For example, if the cost of the breach for the non-breaching party would be approximately $50,000 but the liquidated damages clause asks for a $500,000 payment, this would appear to be more of a penalty than a reasonable estimate of losses, and thus would be more likely to be invalidated by a court.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.

What Is the Liability of a Limited Partner in California?

The difference between a general partner and a limited partner in California partnership comes down to two primary questions: 1) What is your right to control the company?; and 2) What is your liability for the company’s debts and obligations?

The answer to the first question for a limited partner is that there is no right to control the ongoing operations of the business. You can give advice to the general partners, and you may be able to take your assets out of the company if you disagree with the company’s directions, but ultimately only the general partners can dictate how the company should be run.

The upside of this, however, is the answer to question 2. A general partner can be personally liable for the debts and obligations of the company – meaning creditors and plaintiffs can go after not just the company assets but also their personal assets – but a limited partner will only be liable up to his or her contributions to the company. In other words, another party cannot go after a limited partner’s personal assets.

That said, a court may or may not view you as truly a limited partner, and, even then, exceptions may apply.

Do You Have a Limited Partnership?

A general partnership can be formed in California without any corporate formalities, meaning the law can view you as a general partnership even if you never file any paperwork with the state.

Forming a limited partnership does require corporate formalities. You must file a certificate of limited partnership with the state, which has certain requirements for it to be valid, and your company’s name must have the words “limited partnership” or abbreviations “L.P.” or “LP.” The partnership must also create a limited partnership agreement.

Are You Indeed a Limited Partner?

Again, calling yourself a limited partner is not enough to make you a limited partner, and a court might instead look at how you actually conducted yourself with respect to the company before granting you the liability protections of a limited partner.

If a limited partner actually does participate in controlling the partnership, then a court could view that partner as a general partner (with the resulting personal liability), no matter what you are called in practice or in the documents. This does not mean a limited partner cannot do work on behalf of the partnership, such as acting as an employee or contractor, but when that veers into making controlling decisions on behalf of the partnership, personal liability could follow.

Were You Perceived as a General Partner By the Complaining Party?

Under California law, a key distinction in determining whether a presumptive limited partner is indeed personally liable as a general partner is the perception of a third party conducting business with that limited partner.

What this means is that, if a limited partner holds himself out as a general partner (whether expressly or through implication) to a third party, and that party later sues on an obligation, personal liability could potentially follow, given the specific facts of the transactions and conduct.

Work With an Experienced Los Angeles Partnership Dispute Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of partnership litigation matters, including those related to fraud, contractual disputes, and alleged breaches of fiduciary duties. Contact Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute.

Knowing Whether an Easement Exists on Your Property

Whether you own property as a residential or business owner, it can come as an unpleasant surprise when you suddenly see a neighbor or even a stranger on your property, using it as their own. Perhaps they are fishing in a boat on your lake, using your driveway to haul trash, or even putting up power lines across your lawn.

When you go out to confront the person and even threaten to call the police for trespassing, the response might be that that person or the entity they represent has what is called an easement on your property. Essentially, an easement is a limited property interest in your land by another party to use that land for some particular purpose.

Ideally you would have known about this easement before you took possession, and not knowing might be the fault of the seller (for which you could potentially take legal action) or simply due to not understanding the real estate contract.

But the first step will be to determine whether an easement actually exists. You should speak with a real estate attorney to get an informed perspective on your particular situation to determine whether the easement is legitimate or not – and there are at least 11 different ways for an easement to come into place in California – but here are the four basic ways an easement might have been created on your property.

An Express Easement

An express easement is one that was specifically granted to the holder of the easement by the owner of your property, presumably a former owner if you do not recall expressly giving someone else the right to use your property.

This does not mean that a one-time orally-given permission to let your neighbor ride his tractor across your property means he has an easement. Instead the grant of the easement must be in writing to be enforceable.

An Implied Easement

Also called “an implied easement by existing use,” this type of easement only comes into existence when a property owner at one time owned undivided property and then later divided that property into multiple parcels, which could include the property you have now and the property owned by the person claiming to have the easement.

In addition, there is the added requirement that the use of the easement have been in use since the division of the property. For example, if a previous owner sold part of his land including a lake to another person, and continued to use the lake to dock his boat after the sale, there might be an implied easement to keep using the lake in that manner.

An Easement by Necessity

An easement by necessity does not require that both properties have once been under common ownership, but there is the higher bar that the presumptive easement holder must have a necessity in using the easement. This is commonly seen where access to a road from one property is only available by driving across the other property.

A Prescriptive Easement

A prescriptive easement is similar to the concept of adverse possession. In California, a prescriptive easement can be created when one person uses another person’s property for some limited use (e.g. walking across it to get to the beach) in a relatively continuous manner for at least five years when the property owner either knew of the use or reasonably should have known of the use.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. We provide counsel and representation to landlords, developers, commercial tenants, and investors alike. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.

Why Establishing Fraud in Addition to Misrepresentation in a CA Real Estate Litigation Matters

If you purchased a residential or commercial property, and you ended up getting something different than what you thought were getting – which can include anything from omissions regarding defects with the property to inflated or fake rent rolls on a commercial property – you most likely want out of the deal, pure and simple. The same goes for a seller who was misled by a buyer who pulls out of a deal on the eve of closing after it becomes clear he lied about the financing.

 

But, while the end result was that you were misled about a real estate deal, what remedies you receive in court or settlement over your dispute can vary greatly on whether your attorney can prove that there was not only a misrepresentation but also that you were defrauded by the other party.

Punitive Damages are Available in a California Real Estate Fraud Case

In short, the key difference for the plaintiff who can successfully prove a real estate fraud case is that the party can receive punitive damages in addition to the other remedies available in a more straightforward misrepresentation case, in which the plaintiff is generally limited to winning the benefit of the bargain (which can include invalidating and unwinding the deal) and associated costs.

 

Thus, it is important to work with an experienced real estate litigation attorney who has the experience and skills to bring and win a real estate fraud action.

The Elements of Winning a CA Real Estate Fraud Case

To win a fraud action against another party in a real estate deal in California, it will be necessary for your attorney to prove by a preponderance of the evidence (meaning it is more than likely true) that the other party:

  • Made a material (meaning significant) misrepresentation relating to the property, and this misrepresentation can come in the form of a false representation, a concealment of information, or a failure to disclose;
  • The other party knew that a representation was false, or that an important fact was concealed or not disclosed;
  • The other party intended to defraud you by making the false representation, concealment, or nondisclosure (meaning the other party intended that you would go forward with the deal via his wrongful action);
  • You as the complaining party justifiably relied on the misrepresentation (or concealment/nondisclosure) in going forward with the deal; and
  • You suffered damages as a result.

 

While the misrepresentation, your reliance, and your damages may be relatively straightforward in some cases (which, by themselves, can potentially form the basis of a successful breach of contract action), proving that the other party knew the representation was false and that they intended to defraud can be challenging.

 

An experienced real estate litigation attorney, however, will rely on sophisticated investigative and discovery methods to identify and locate evidence relating to such intent, and aggressively seek out the highest financial recovery possible on your behalf.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.

Building Men in Uganda 2018

I leave for Uganda on July 6. This is my 9th year going there to work with the vocational school students at Bringing Hope to the Family orphanage. What I love is the generation of leaders like Mugume Bright and William Tumusiime who have worked with me for the last 9 years who organize our projects and plan everything. They put in so much hard work and are incredible examples to the young men. And everything I do is because of everything they do. Bright has already sent me the names of the new students and William went out to visit them and sent me this photo. Together we are building men. Awesome!

Understanding When You Are Liable for a Partner’s Actions in a California Partnership

When you decide to go into business with another person in a California partnership, you are no doubt dreaming about the profits that you are going to make by working together. What you might not be thinking about, however, is the fact that you may become liable for that partner’s actions, even if those actions are taken unilaterally and without your specific approval.

 

The analogy that a business partnership is like a marriage in not true in all respects, but there is some connection in the sense that your partner’s debts and liabilities may well become your liabilities, if they are incurred in the course of the partnership. Confusion over who should pay for partnership liabilities is frequently a source of partnership litigation in California, and you are encouraged to consult with an experienced partnership litigation attorney regarding your rights and obligations should such a dispute arise.

When You May Be Liable For a Partner’s Liabilities

You can be liable for a partner’s debts – whether they arise out a commercial contract (e.g. an agreement to buy goods for a vendor every month), out of a tort judgement (e.g. a personal injury lawsuit or fraud claim), or other potential liabilities – so long as the liability arose when the other partner was: 1) acting in the ordinary course of business of the partnership; or 2) with the authority of the partnership.

 

To put this into a simple example, let’s say you run a grocery delivery business with another partner. If that partner causes a car accident while delivering groceries for the partnership, this would be in the ordinary course of business, and you as a partner would potentially be liable for personal injury claims.

 

Let’s say, however, that the partner decides to go to the airport using a company car, which is outside the ordinary course of the business, but you give approval of this action. If a crash occurs on the way to the airport, you could be liable because the partnership as the partnership gave approval or “authority” for this trip.

 

On the other hand, if the partner causes an accident while drunk driving in a company car late on Friday night, and this was not in the ordinary course of business and without the partnership’s approval, there may not be liability for the partnership or you personally.

 

The above example involves a tort case, but the same would go for contracts entered into by one partner, and a relevant question regarding liability would be whether the contract was in the ordinary course of business of the partnership and/or whether it was approved by the partnership.

Understanding the Extent of Your Liability for CA Partnership Debts

While the liability of the partnership is one question, a further question is just how much liability an individual partner will face. This will depend on: 1) the type of partnership created; 2) the role of a given partner; and 3) when the partner joined the partnership with respect to the liability.

 

These are complex questions, but, with respect to the first issue, general partners can see their partnership assets at risk, and also be personally liable (meaning creditors can seek their personal assets outside of the partnership), while those in limited partnerships or LLCs may be shielded from having personal liability. With regard to the second question, a limited partner may also be able to shield his personal assets in a way that a general partner cannot (but the fact that you are merely a “dormant” general partner may not shield you). Finally, partners are generally only liable for debts and judgments that arise after they join the partnership.

 

Speak to an experienced partnership litigation attorney for further insight about your particular situation.

Work With an Experienced Los Angeles Partnership Dispute Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of partnership litigation matters, including those related to fraud, contractual disputes, and alleged breaches of fiduciary duties. Contact Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute.

Distinguishing the Duty Not to Compete and Non-Compete Agreements in Your California Partnership

At the very heart of the concept of a business partnership is the idea that you and another party (or multiple parties) are working together, on the same side, in the pursuit of a common goal, and therefore not working adverse to one another. At the same time, however, entrepreneurs and investors often have multiple business interests beyond a single partnership, and often in similar spaces in the marketplace, thus the question of whether one partner is unfairly competing against another partner with a different venture can lead to disputes and even partnership litigation.

 

What can make this process confusing is the presence of two related but distinct concepts in California law: 1) the duty partners have not to compete with one another; and 2) non-compete agreements. To be clear, the first of these – the duty not to compete – is codified in California law, and applies to all partnerships. The second relates to a specific agreement that partners might reach outside of a partnership agreement, and these are often (but not always) deemed invalid and unenforceable by California courts.

The California Partnership Duty Not to Compete

Anytime two or more persons work together towards a common business goal in which they share profits, they can potentially be considered a partnership under California law, even if they have not formally drafted a partnership agreement. The important effect of this is that California partnership law will apply to their business dealings, giving each partner rights and obligations/duties with regard to one another.

 

One of these duties is spelled out in California Corporations Code section 16404(b)(3), which states that partners have a duty to “refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.” A key aspect of determining whether a breach of this duty has occurred is determining whether the alleged competitive conductive actually competes with the partnership business as the description of that business is spelled out in the partnership agreement.

Why Non-Compete Agreements Often Fail in California Courts

Thus, partners automatically have a duty not to compete with another based on California law, but issues and confusion can arise when partners additionally create a non-compete agreement outside of the partnership agreement further restricting their ability to compete with one another.

 

While such non-compete agreements may be common nationwide, California has long had a very hostile approach to non-compete agreements, often finding them unenforceable. Indeed, California Corporations Code section 16600 states that, Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

 

What this means is that, outside of certain exceptions, a California court may be unlikely to enforce a non-compete agreement between partners, although the court may be willing to provide equitable relief (e.g. an award for unjust enrichment) where there is egregious behavior by one partner or an otherwise compelling reason.

 

The moral of this story, thus, is that partners who wish to prevent other partners from competing against the partnership itself should take care to make sure the partnership agreement itself reflects this and not to rely on additional non-compete agreement which may run into problems of enforceability in at least some cases

Work With an Experienced Los Angeles Partnership Dispute Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of partnership litigation matters, including those related to fraud, contractual disputes, and alleged breaches of fiduciary duties. Contact Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute.

3 Reasons Minority Shareholders Sue Majority Shareholders

As fellow shareholders in a corporation, minority and majority shareholders are hypothetically “on the same team” with respect to their ultimate interests being aligned, at least with respect to share value. But, of course, as with any type of institution made up of individual voices and wills, disputes can erupt over any number of issues relating to power, control, direction, and a host of other concerns related to a corporation’s fortunes.

 

Tension between shareholders can be especially acute where there is a majority shareholder who, by definition, owns more than 50% of the shares of the corporation and, in most cases, has the ability to control the vote for officers and other large decisions affecting the corporation. When there is perceived abuse of minority shareholder rights, one or more minority shareholders may decide to bring a lawsuit to enforce those rights. Here are three common reasons this occurs.

Refusal to Allow Access to Corporate Books and Records

Minority shareholders do have the right to review corporate books and records relating to accounting, corporate meetings, and other significant issues affecting the corporation. If a majority shareholder takes actions which prevent other shareholders from accessing the records in order to understand the corporation’s finances and other innerworkings, they may sue to gain access.

Breach of Fiduciary Duties

Similar to the officers and directors of a corporation, majority shareholders have fiduciary duties to the other shareholders in the corporation, namely the duty to put the interests of the corporation above their own in how they conduct business affecting the corporation.

 

Generally, this means they must act in good faith and exercise the same type of duty of care in acting as a majority shareholder on behalf of the corporation, taking action which benefits all shareholders proportionally, not just themselves. For example, if the majority shareholder votes to approve a sale of the company’s assets, there should be evidence that the price is fair, and that there is not an outside benefit motivating the sale which is not shared with other shareholders.

 

Similarly, there is also a duty not to compete with the corporation or to usurp business opportunities that should have gone to the corporation. Thus, a situation in which a majority shareholder acts to avoid engaging in a business opportunity which then goes to another business owned by the majority shareholder could invite a breach of fiduciary claim by the minority shareholders.

Refusal to Allow Access to the List of Shareholders

Knowing who the other shareholders in a corporation can be key to working together to leverage control in a corporation, and it is the right of certain qualified shareholders to demand access to a list of the shareholders of the corporation, including contact information. Refusal to provide access can result in legal action.

Experienced Representation in Your Shareholder Litigation Matter

The business litigation attorneys at Wagenseller Law Firm in downtown Los Angeles have extensive experience in representing businesses, corporations, directors, officers, and shareholders in shareholder disputes. We have worked with businesses and individuals throughout Southern California across a wide range of industries, including financial service entities, manufacturers, importers, retail stores, restaurants, entertainment entities, law firms, and more. Contact us today to discuss your breach of fiduciary duty matter.

Do Commercial Tenants Lose Their Rights When the Building Is Sold?

The sale of a commercial building or common property to new owners can raise significant uncertainty for business tenants whose livelihood may be tied to a familiar relationship with a landlord/owner, especially where there is goodwill and other capital associated with this specific location, such as foot traffic or a dedicated client base in the area. Certainly, a new owner can mean a very different way of conducting business and relating to the current tenants, but, in most cases, current commercial clients will retain the rights afforded to them by their presently enforceable lease.

Your Current Lease Should Control, Absent Special Provisions

A lease is, of course, a contract between the tenant and the landlord, and, as is generally the case with contracts, the fact that a third party (in the form of the new purchaser of the property) has assumed the obligations and rights of the lease by means of purchasing the property means that the third party must also fulfill those obligations of the lease to the same extent as the initial landlord. Thus, if you have a 24-month lease with the previous landlord, the new owner must abide by that obligation to provide you the space on the same terms as the previous landlord.

 

That said, the landlord with whom you conducted business may have inserted an early termination clause which does allow for a third party to terminate the lease in the case of a sale, as giving potential buyers the flexibility to terminate leases does raise the potential value of the property. Thus, working with a real estate litigation attorney to understand the terms of the lease is helpful to planning for both landlords and investors alike.

A New Landlord May Take a More Aggressive Approach to the Lease

Assuming no early termination clause exists, the commercial tenant can use the promises of the lease to remain in place on the same terms as before. But, even though the same lease is in place, this does not mean that the new landlord will necessarily operate in the same manner as the previous landlord with regard to what constitutes a breach of the lease which could lead to potential eviction proceedings.

 

For example, if the lease prohibits onsite food preparation for sale, or employees of businesses parking in certain spots, but the previous landlord never bothered to complain when tenants took such actions in violation of the lease, that is no guarantee that the new landlord won’t make a legal issue out of the violations, and prior custom may not be a valid defense to such actions.

 

Furthermore, it should go without saying that a failure to pay rent to the new landlord will in many cases give the new owner the ability to take legal action against the tenant terminating the lease.

The Landlord Is Not Necessarily Entitled to Renew the Lease Terms

Finally, it should be noted that a new owner will not be entitled to renew the terms of the lease at the expiration of the lease period, even if the previous landlord had gone month-to-month with the lease or never attempted to renegotiate the terms of the lease in a significant manner.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. We provide counsel and representation to landlords, developers, commercial tenants, and investors alike. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.