What is contract formation?

“Contract formation is governed by objective manifestations, not subjective intent of any individual involved.” Roth v. Malson (1998) 67 Cal. App. 4th 552. “The test is ‘what the outward manifestations of consent would lead a reasonable person to believe.’” Id.; see also, Guzman v. Visalia Community Bank (1999) 71 Cal.App.4th 1370, 1376-1377 (“the test of the true meaning of an acceptance or rejection is…what a reasonable person in the position of the parties would have thought it meant”)

A cause of action relating to contract formation addresses the presence or absence of each of the elements of a legally valid contract. The essential elements of a legally valid contract are:

  1. parties capable of contracting,
  2. their consent,
  3. a lawful object, and
  4. a sufficient cause or consideration.

Civ. Code § 1550. Civil Code, section 1640 states that “[w]hen, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded.”

“Fraud, or misrepresentation, may be asserted as an affirmative defense to a breach of contract claim. See Grady vs. Easley (1941) 45 Cal.App.2d 632, 642 (“One who has been induced to enter into a contract by false and fraudulent representations may rescind the contract....”); and Bowmer vs. H. C. Louis, Inc. (1966) 243 Cal.App.2d 501, 503 (“It is well established that a defrauded defendant may set up the fraud as a defense and, in fact, may even recoup his damages by counterclaim in an action brought by the guilty party to the contract”).

“Where one party commits fraud during the contract formation or performance, the injured party may recover in contract and tort.” Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 79, 78; see also Lazar v. Super. Ct. (1996) 12 Cal. 4th 631, 645.

“The rules governing the role of the court in interpreting a written instrument are well established. The interpretation of a contract is a judicial function.” Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1125-1126.

“In engaging in this function, the trial court ‘give[s] effect to the mutual intention of the parties as it existed' at the time the contract was executed. Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract’s terms.” Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1125-1126. Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous. Wolf, supra, 162 Cal.App.4th at p. 1126; see also Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging (1968) 69 Cal.2d 33, 39-40

If extrinsic evidence reveals that apparently clear language in the contract is, in fact, “susceptible to more than one reasonable interpretation,” then extrinsic evidence may be used to determine the contracting parties’ objective intent. Id.

Useful Rulings on Contract Formation

Recent Rulings on Contract Formation

NEIL YESCHIN VS HYUNDAI MOTOR AMERICA

When one party commits fraud during the contract formation or performance, the injured party may recover in both contract and tort. (Id.) Should Plaintiff adequately allege the elements of fraud, his claim shall survive the economic loss rule.

  • Hearing

HERNANDEZ VS KADVA PATIDAR 42 GAM SAMAJ

Rptr. 2d 649] [“when one party commits a fraud during the contract formation or performance, the injured party may recover in contract and tort”].)

  • Hearing

BRYAN NAVARRO ET AL. VS BARONHR WEST, INC., A CORPORATION ET AL.

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” (Id. (quoting Armendariz v. Foundation Health Psychcare Services, Inc. (200) 24 Cal.4th 83, 114.) A.

  • Hearing

  • Judge Jayne Lee
  • County

    San Joaquin County, CA

NOYEMI KAROYAN, AN INDIVIDUAL VS HYUNDAI OF GLENDALE, LLC A BUSINESS ENTITY EXACT FORM UNKNOWN, ET AL.

Courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the contract terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude the term is unenforceable, and vice versa. (Armendariz, supra, 24 Cal. 4th at p. 114.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Other Employment

KEVIN GABAGIZADEH VS BMW OF NORTH AMERICA, LLC, A DELAWARE LIMITED LIABILITY COMPANY, ET AL.

But both components need not be present in the same degree; “[e]ssentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” (Id. (quoting Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.))

  • Hearing

FABIO ALBANO VS HENRIK FISKER, ET AL.

Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” See, Armendariz, 24 Cal.4th at 114.

  • Hearing

  • Type

    Personal Injury/ Tort

  • Sub Type

    Fraud

XERA HEALTH LLC VS SCHEELE

Here, the evidence regarding contract formation is conflicting because, on the one hand, defendants claim there was no mutual assent and the parties merely had an agreement to "commence good faith negotiations aimed at agreeing upon a long-form licensing agreement," while on the other hand, plaintiff contends that the Term Sheet was a "binding agreement between the parties." (Compare Defs.' Ex. 2 with Bresnan Decl., ¶¶ 14-15, Henry Decl., ¶ 16, and Pltf.'s Exs. D and E.)

  • Hearing

  • Type

    Contract

  • Sub Type

    Breach

GENNCOMM, LLC. VS BEVERLY HILLS TEDDY BEAR COMPANY, ET AL.

The validity of the patents in the Federal Case is relevant to BHTBC’s contentions disputing proper contract formation. The cross-claims place into issue whether Genncomm had exclusive ownership of the toy – alleged by BHTBC to be a misrepresentation and grounds to void the License Agreement. (Third Amended Cross-Complaint pg. 5:4-7, 6:8-12, ¿¿14, 17, 33, 40-41.)

  • Hearing

  • Type

    Personal Injury/ Tort

  • Sub Type

    Fraud

JOHN ROESSLER V. SYNECTIC SYSTEMS, INC., ET AL.

Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.”

  • Hearing

MARTINEZ V. A.M.N. HYGIENE LLC, ET AL.

“Whether an agreement to arbitrate exists is a threshold issue of contract formation and state contract law.” (Avila v. Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 843–844, internal citations omitted.) The evidence here shows that the Arbitration Agreement (section 12 of the Employee Handbook) was not specifically brought to Plaintiff’s attention.

  • Hearing

TOLARA GROSS VS EDUCATION MANAGEMENT SYSTEMS

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

  • Judge Elaine Lu
  • County

    Los Angeles County, CA

CARLOS OCHOA VS EMPLOYBRIDGE HOLDING COMPANY DBA SELECT FAMILY OF STAFFING COMPANIES, ET AL.

But both components need not be present in the same degree; “[e]ssentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” (Id. (quoting Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.))

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

DONLEY VS FORMFACTOR INC

"Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves." (15 Williston on Contracts (3d ed. 1972) § 1763A, pp. 226-227; see also A & M Produce Co., supra, 135 Cal.App.3d at p. 487.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Other Employment

DAVID J. TAVITA VS COROVAN CORPORATION, ET AL.

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

RAYMOND SAFARIAN VS FORD MOTOR COMPANY, ET AL.

For example, when one party commits a fraud during the contract formation or performance, the injured party may recover in contract and tort. [Citation.]” Harris v. Atlantic Richfield Co., 14 Cal. App. 4th 70, 78 (1993). California courts recognize an exception to the economic loss rule in cases of fraudulent inducement.

  • Hearing

ENIS GONZALEZ VS BOCCHI LABORATORIES, ET AL.

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

SAFIN VS RAVIG INC.

In deciding whether the parties agreed to arbitrate, the courts generally apply state-law principles to the issue of contract formation. Defendants indicate a willingness to apply California law, despite the choice of law provision in the contract. “In California, ‘[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.’ [Citations.]’” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

  • Hearing

CROWLEY PROFESSIONAL CONTRACTORS , INC. VS JOE H MARRERO

CPC and Crowley argue the cause of action lacks specificity, and because the alleged bad acts occurred after the contract formation, they cannot form the basis of a fraud in the inducement claim. (Demurrer at p. 7.) The elements of fraud are “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v.

  • Hearing

  • Type

    Contract

  • Sub Type

    Breach

DIHEN V. VOLVO USA, INC., ET AL.

Thus, where one party commits fraud during the contract formation or performance, the injured party may recover in contract and tort. (Ibid.; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 79, 78.) Here, such conduct by Defendant has been alleged, with Plaintiff pleading that she would not have purchased the vehicle if Defendant has not intentionally chosen to withhold the material facts of various known defects. (SAC, ¶ 18.)

  • Hearing

(NO CASE NAME AVAILABLE)

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

  • Hearing

AQUINDE VS. PERFORMANCE SETTLEMENT

Contract Formation. Plaintiff acknowledges signing the subject contract documents electronically. (Aquinde Dec., filed on 10-14-20, ¶¶ 10-14.) This makes the decisions cited by plaintiff on this point distinguishable. (See, Fabian v. Renovate America, Inc. (2019) 42 Cal.App.5th 1062, 1065; Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 840.)

  • Hearing

SPEEDY FUEL INC VS GILBARCO INC ET AL

In opposing this motion, Speedy states that Emma “has relevant information on the contract formation and the fraud perpetrated on Speedy.” (Opp. at 8.) Cashiers: Speedy expressly alleges that Speedy’s cashiers were involved in making the purported contracts underlying its claims. (FAC ¶¶ 40, 43.)

  • Hearing

  • Type

    Collections

  • Sub Type

    Collections

TYRONE BERNARD WOODS VS LAD-N, LLC (DBA AS NISSAN OF DOWNTOWN LA #310)

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

  • Judge Elaine Lu
  • County

    Los Angeles County, CA

RAGAIE GOBRAN VS KEYAUD, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY

When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation.] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” Davis v. Nordstrom, Inc., 755 F.3d 1089, 1092-93 (9th Cir. 2014). Defendant contends Plaintiff executed the Arbitration Agreement when he began his employment with Key Aud. Mot. Compel Arbitration 2.

  • Hearing

  • Type

    Employment

  • Sub Type

    Wrongful Term

CESAR ROMERO ET AL VS FIRST AMERICAN TITLE COMPANY ET AL

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” [Citation] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz v.

  • Hearing

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