MEMO TO:
Alexsei Demo US
RESEARCH ID:
#4000735130dfe1
JURISDICTION:
State
STATE/FORUM:
California, United States of America
ANSWERED ON:
May 26, 2022
CLASSIFICATION:
Contracts

Issue:

Can a plaintiff still enforce a contract if the plaintiff previously breached the contract?

Conclusion:

Even if a plaintiff has breached the contract, the plaintiff may still enforce the contract in certain circumstances. California courts have evaluated this issue in two different ways with some cases barring recovery only if the plaintiff's breach was "material" and other cases barring recovery if the promises that the plaintiff breached are dependent on the promises that the plaintiff seeks to enforce against the defendant. (W. Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP No. MT-19-1057-FBH (B.A.P. 9th Cir. 2019))

A breach is material if it goes to the essence of the agreement. The question of whether a breach of an obligation is material is a question of fact. Whether a partial breach of a contract is material depends on the importance or seriousness of the breach and the probability of the injured party getting substantial performance. (Brown v. Grimes, 192 Cal. App. 4th 265, 120 Cal.Rptr.3d 893, 11 Cal. Daily Op. Serv. 1322, 2011 Daily Journal D.A.R. 16 (Cal. App. 2011), W. Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP No. MT-19-1057-FBH (B.A.P. 9th Cir. 2019), Urica, Inc. v. Pharmaplast, S.A.E., 2013 U.S. Dist. LEXIS 203303, 2013 WL 12123230 (C.D. Cal. May 6, 2013))

If the parties’ obligations are independent, the breach by one party does not excuse the other party’s performance. Instead, the non-breaching party still must perform and its remedy is to seek damages from the other party based on its breach of the contract. (Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018), Vacco Industries, Inc. v. Van Den Berg, 6 Cal.Rptr.2d 602, 5 Cal.App.4th 34 (Cal. App. 1992))

The determination of whether a promise is an independent covenant is based on the intention of the parties as deduced from the agreement and the plain language of the agreement. This determination is a question of fact. (Brown v. Grimes, 192 Cal. App. 4th 265, 120 Cal.Rptr.3d 893, 11 Cal. Daily Op. Serv. 1322, 2011 Daily Journal D.A.R. 16 (Cal. App. 2011), W. Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP No. MT-19-1057-FBH (B.A.P. 9th Cir. 2019), Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018))

Where covenants of a contract are to be performed at different times, they are independent. (Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018))

When a covenant or promise goes only to a part of the consideration, and a breach thereof may be paid for in damages, it is an independent covenant or promise. (Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018))

Law:

In Oasis West Realty, LLC v. Goldman, S181781 (Cal. 2011), the Supreme Court of California set out the elements of a cause of action for breach of contract (at 10):

[...] And the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.)

In Brown v. Grimes, 192 Cal. App. 4th 265, 120 Cal.Rptr.3d 893, 11 Cal. Daily Op. Serv. 1322, 2011 Daily Journal D.A.R. 16 (Cal. App. 2011) ("Brown"), the appellant argued that he was entitled to damages for the defendant's breach of contract; however, the trial court found that the appellant's own breach of the agreement excused the defendant from further performance under the fee-sharing agreement. The California Court of Appeal for the Second District explained that when a party's failure to perform a contractual obligation constitutes a material breach of the contract, the other party may be discharged from their duty to perform under the contract. The question of whether a breach of an obligation is a material breach is a question of fact. Whether a partial breach of a contract is material depends on the importance or seriousness of the breach and the probability of the injured party getting substantial performance (at 276-278):

Brown alleges that he is entitled to damages for Grimes's breach of contract in failing to pay Brown his share of the **902 contingency. 2 The trial court found that the fee-sharing agreement between Grimes and Brown included as a "key term" Brown's oral promise to compensate Ross. 3 Brown's promise was a condition of Grimes's agreement to give Brown a higher percentage than is normally given to a referring attorney. The trial court further found that Brown breached his promise by not compensating Ross or acknowledging that he would compensate Ross, even after Grimes had sent to Brown $1,342,000 from fees received. The trial court therefore found that Brown's breach excused Grimes from further performance under the fee-sharing agreement.

[...]

When a party's failure to perform a contractual obligation constitutes a material breach of the contract, the other party may be discharged from its duty to perform under the contract. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, §§ 813, 814, p. 906 (Witkin) ["Material failure of consideration discharges the other party's duty"]; De Burgh v. De Burgh (1952) 39 Cal.2d 858, 863, 250 P.2d 598 ["in contract law a material breach excused further performance by [an] innocent party"]; see Sanchez v. County of San Bernardino (2009) 176 Cal.App.4th 516, 529-530, 98 Cal.Rptr.3d 96; Wyler v. Feuer (1978) 85 Cal.App.3d 392, 404, 149 Cal.Rptr. 626; see also Walker v. Harbor Business Blocks Co. (1919) 181 Cal. 773, 778, 186 P. 356 [" 'failure ... to perform an obligation ... releases the obligee from the duty of making demand, and **903 performance or tender, and justifies him in abandoning the contract' "]; 15 Williston on Contracts (4th ed. 2000) § 44:46, pp. 200-201 (Williston) [when there are a number of performances for each party to the contract, a breach by a party of one, if material, allows the other party to treat the contract as discharged]; see also Civ.Code, § 1439 ["Before any party to an obligation can require another party to perform any act under it, he must fulfill all conditions precedent thereto imposed upon himself; and must be able and offer to fulfill all conditions concurrent so imposed upon him on the like fulfillment by the other party ..."].) Normally the question of whether a breach of an obligation is a material breach, so as to excuse performance by the other party, is a question of fact. (See Sanchez v. County of San Bernardino, supra, 176 Cal.App.4th at pp. 529-530, 98 Cal.Rptr.3d 96; Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1051-1052, 241 Cal.Rptr. 487; Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 601, 78 Cal.Rptr. 302 ["Whether a breach is so material as to constitute cause for the injured party to terminate a contract is ordinarily a question for the trier of fact"]; Wyler v. Feuer, supra, 85 Cal.App.3d at p. 404, 149 Cal.Rptr. 626; California Jury Instructions-Civil (Spring 2010 ed.), BAJI No. 10.82, p. 685; see also Insurance Underwriters Clearing House, Inc. v. Natomas Co. (1986) 184 Cal.App.3d 1520, 1526-1527, 228 Cal.Rptr. 449 ["Ordinarily the issue of materiality is a mixed question of law and fact, involving the application of a legal standard to a particular set of *278 facts. However, if reasonable minds cannot differ on the issue of materiality, the issue may be resolved as a matter of law"]; 23 Williston on Contracts (4th ed. 2002) § 63:3, p. 440 (fn. omitted) ["The determination whether a material breach has occurred is generally a question of fact"].) Whether a partial breach of a contract is material depends on "the importance or seriousness thereof and the probability of the injured party getting substantial performance." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 852, pp. 938-940; see also Superior Motels, Inc. v. Rinn Motor Hotels, Inc., supra, 195 Cal.App.3d at p. 1051, 241 Cal.Rptr. 487; Sackett v. Spindler (1967) 248 Cal.App.2d 220, 229, 56 Cal.Rptr. 435 [setting forth various factors as to materiality].) "A material breach of one aspect of a contract generally constitutes a material breach of the whole contract." (23 Williston, supra, at § 63:3, p. 440, fns. omitted.)

The Court found that there was substantial evidence to support the trial court's finding that the plaintiff's breach was material and thereby excused the defendant's performance.

The plaintiff argued that his obligation was based on an independent covenant, therefore even if his breach was material, it should only result in him paying damages to the defendant, not excusing the defendant from performance. The determination of whether a promise is an independent covenant is based on the intention of the parties as deduced from the agreement. This determination is a question of fact. The Court found that the trial court did not err when it excused the defendant's performance and found that the promises by the plaintiff and the defendant were not independent (at 278-279):

 Even though Brown does not challenge the sufficiency of the evidence supporting the trial court's implied finding that Brown materially breached the fee-sharing agreement thereby excusing Grimes's performance, 4 we note that there is substantial evidence to support the trial court's finding. Ross asserted he was entitled to substantial compensation. Grimes said that he agreed to provide Brown with a much higher percentage of the fees on the condition that Brown compensate Ross. The trial court found that Brown's promise to compensate Ross was a "key" term of the fee-sharing agreement. Brown refused to pay Ross and denied that he, Brown, had a 90/10 fee splitting **904 agreement with Ross. When Grimes suggested putting fees in an account, Brown demanded immediate payment. Grimes's efforts to have Brown and Ross reach an agreement on compensation were to no avail. By the time Ross sued Grimes, Brown had not paid anything to Ross. If Grimes paid Brown money and Brown did not satisfy Ross, Grimes risked that Ross would claim a portion of that money from Grimes. And with the advent of litigation, Grimes faced legal expenses.

Brown contends that his failure to compensate Ross, even if a breach of the fee-sharing agreement, should only result in his paying damages to Grimes and not in excusing Grimes from Grimes's obligation to pay Brown. Otherwise, Brown argues, he would be subjected to a forfeiture. Brown's argument assumes, inter alia, that his obligation is based on a promise or covenant independent of Grimes's promise to Brown. (See Fresno Canal & Irrigation Co. v. Perrin (1915) 170 Cal. 411, 415-416, 149 P. 805; Verdier v. Verdier (1955) 133 Cal.App.2d 325, 334, 284 P.2d 94; 1 Witkin, Summary of Cal. Law, supra, Contracts, *279 §§ 810-812, at pp. 902-906; 15 Williston, supra, § 44:6, pp. 92-94.) Brown did not make such a contention before the trial court. He argued he made no such promise at all. Although during the trial court proceedings, Grimes entered into a settlement agreement with Ross, the terms of that settlement are not determinative of Grimes's damages for Brown's breach of the agreement, for Grimes had to expend attorney fees in connection with Ross's claims, and the amount payable to Ross was subject to the outcome of Brown's claim against Grimes. Moreover, the issue was whether Brown's breach relieved Grimes of his obligation, not what occurred during litigation. (See Rest.2d Contracts, § 237, com. a., pp. 215-216, § 242, pp. 244-245.)

The determination of whether a promise is an independent covenant, so that breach of that promise by one party does not excuse performance by the other party, is based on the intention of the parties as deduced from the agreement. (15 Williston, supra, § 44:7, at pp. 94-96.) The trial court relied upon parol evidence to determine the content and interpretation of the fee-sharing agreement between the parties. Accordingly, that determination is a question of fact that must be upheld if based on substantial evidence. (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166, 6 Cal.Rptr.2d 554.) By excusing Grimes's performance, the trial court found that the promises by Brown and Grimes were not independent, and Brown does not challenge the sufficiency of the evidence to support this finding. Moreover, it would seem unlikely that the parties intended that Grimes would have to continue to pay Brown if Grimes remained vulnerable to claims of Ross that Brown was obligated to satisfy. Brown would necessarily be required to fulfill his promise to pay Ross each time Grimes had to pay Brown based on fees Grimes periodically received. Brown, in effect, had repudiated his obligation to pay Ross at the time he was demanding payment from Grimes. Whether Brown's promise to compensate Ross is viewed as a condition or a dependent covenant or promise (see Witkin, supra, Contracts, § 778, at pp. 867-868 and § 811 at pp. 903-905; 8 Corbin on Contracts (rev'd ed. 1999) § 30.12, pp. 22-27; Rest.2d Contracts § 237, p. 215, § 237, com. b., pp. 217-218), the trial court did not err in finding that the breach of that promise excused Grimes from further performance of the fee-sharing agreement.5

In Machado v. Myers, 39 Cal.App.5th 779, 252 Cal.Rptr.3d 493 (Cal. App. 2019), the California Court of Appeal for the Fourth District explained that while the trial court's minute order noted that the appellants did not abide by the terms of the settlement agreement, a finding that a party failed to abide by certain settlement terms does not necessarily support a finding the party materially breached the agreement. Furthermore, only a material breach by the appellants would discharge the plaintiffs from their duties to perform under the settlement agreement. Thus the Court found that the trial court's minute order did not support the subsequent findings in the judgment that the plaintiffs were excused from further performance because the appellants breached the settlement (at 796-797): 

Moreover, resolving allegations that Appellants breached their obligations on the Machados' application, without affording Appellants an adequate opportunity to respond or be heard, was erroneous. Specifically, Appellants were not provided an adequate opportunity to be heard regarding the Machados' contention, asserted for the first time in their December 2017 application, that Appellants breached the settlement agreement, or that their actions permitted the Machados to revoke the parties' contemplated license agreement. Although

[252 Cal.Rptr.3d 507]

the 2016 minute order granting the Machados' section 664.6 motion briefly noted Appellants "did not abide by the terms of the settlement," a finding that a party failed to abide by certain settlement terms does not necessarily support a finding the party materially breached the parties' agreement. (See Brown v. Grimes (2011) 192 Cal.App.4th 265, 277-278, 120 Cal.Rptr.3d 893 [one party's material breach of contract may

[39 Cal.App.5th 797]

relieve the other party from its duty to perform under a contract; question of whether a breach of an obligation is a material breach, so as to excuse performance by the other party, is a question of fact].) Only a material breach by Appellants would discharge the Machados from their duties to perform under the agreement. (Ibid.) Moreover, the parties contemplated their license agreement would contain a mediation provision "in connection with future disputes," a process that apparently never took place. Thus, the 2016 minute order does not support the subsequent, more expansive, findings in the judgment that Appellants breached the settlement, and that the Machados are excused from further performance.

In sum, there were no disputes regarding the material terms of the parties' agreement recited on the record in February 2016, and the actions taken by the court in entering judgment exceeded the actions it was authorized to take based on the specific request for entry of judgment under section 664.6 that was before the court.

In the unpublished decision of W. Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP No. MT-19-1057-FBH (B.A.P. 9th Cir. 2019), the United States Bankruptcy Appellate Panel for the Ninth Circuit explained that even if a plaintiff has breached the contract, the plaintiff may still enforce the contract in certain circumstances. California courts have evaluated this issue in two different ways. Some cases have barred recovery only if the plaintiff's breach was "material." Other cases ask whether the promises that the plaintiff breached are dependent on or independent of the promises that the plaintiff seeks to enforce against the defendant. Under this analysis, the breaching plaintiff can enforce any of the defendant's obligations that are independent of the plaintiff's breached obligations, subject to an offset for any damages the defendant incurred due to the plaintiff's breach, but the plaintiff cannot enforce any of the defendant's promises that are dependent on the plaintiff's promises. The Court noted that California caselaw does not explain how to choose between the two approaches and that the court in Brownsupra, actually applied both. The panel did not decide which approach was appropriate in this case because they found the results were the same under either approach (at 13-17):

WCP argues that the bankruptcy court erred in finding that it could not enforce the Guaranty because Ms. Blixseth breached the Letter Agreement. We disagree.

Page 14

"The elements of a breach of contract action under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach." Moss vInfinity InsCo., 197 F. Supp. 3d 1191, 1201 (N.D. Cal. 2016) (citing Buschman vAnesthesia BusConsultantsLLC, 42 F. Supp. 3d 1244, 1250 (N.D. Cal. 2014)).

WCP does not deny that Ms. Blixseth breached her obligations. She disparaged Mr. Sandoval and his companies and disclosed the terms of the Letter Agreement. She also failed to cause Opspring to pay the quarterly Performance Fee to Atigeo.7

But this is not the end of the inquiry. Even if the plaintiff has breached the contract, the plaintiff may still enforce the contract in certain circumstances. California law evaluates this issue in two different ways.

One line of cases bars recovery only if the plaintiff's breach was "material." See Comedy ClubIncvImprov WAssocs., 553 F.3d 1277, 1289 n.12 (9th Cir. 2009) ("The general rule is that if the breach is a material breach, it may give grounds for the non-breaching party to cancel the contract, but if the breach is a partial breach, the non-breaching party's

Page 15

remedy is for damages." (citations omitted)). A material breach occurs where the failure to perform "is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract.'" Aslan vSycamore InvCo(In re Aslan), 909 F.2d 367, 370 (9th Cir. 1990) (quoting Superior MotelsIncvRinn Motor HotelsInc., 195 Cal. App. 3d 1032, 1051 (1987)). "Whether a partial breach of a contract is material depends on 'the importance or seriousness thereof and the probability of the injured party getting substantial performance.'" Brown vGrimes, 192 Cal. App. 4th 265, 278 (2011) (citations omitted). This line of cases is consistent with the Restatement (Second) of Contracts. See Restatement (Second) of Contracts § 237 cmt. b (Am. Law Inst. 1981) ("Where performances are to be exchanged under an exchange of promises, each party is entitled to the assurance that he will not be called upon to perform his remaining duties of performance with respect to the expected exchange if there has already been an uncured material failure of performance by the other party.").

The second line of cases asks whether the promises that the plaintiff breached are dependent on or independent of the promises that the plaintiff seeks to enforce against the defendant. The breaching plaintiff can enforce any of the defendant's obligations that are independent of the plaintiff's breached obligations, subject to an offset from any damages the defendant incurred due to the plaintiff's breach; but the plaintiff cannot enforce any of the defendant's promises that are dependent on the

Page 16

plaintiff's promises. "If the covenants are independent, breach of one does not excuse performance of the other." Verdier, 133 Cal. App. 2d at 334 (citation omitted). Whether provisions in an agreement are dependent or independent "is wholly [a question] of construction of the agreement." Id. (citation omitted).

California case law does not explain how to choose between the two approaches.8 In fact, one decision by the California court of appeal applies both approaches without explanation. Brown applies the materiality standard, 192 Cal. App. 4th at 277-78, and the independence standard, id. at 278-79, without noting that the two standards are different.

One court has reasoned that the two approaches are nearly the same: "One way of determining whether a breach is material is to decide whether the covenant breached was independent or dependent. Breach of an independent covenant is not, as a matter of law, a material breach. By definition, an independent covenant does not go to the essence of a contract." Flagship W., LLC vExcel Realty PartnersL.P., No. 102-CV-05200 OWW DLB, 2005 WL 4701939, at *4 (E.D. Cal. Sept. 30, 2005), vacated on other grounds and remanded, 337 F. App'x 679 (9th Cir. 2009) (citations omitted). But the converse is not necessarily true. "[T]he fact-finder need

Page 17

not necessarily answer the question whether the covenant breached is independent in order to decide that the breach was material. California case law has long held that the answer to the materiality question is determinative." Id.

Fortunately, we need not decide which of these approaches is correct or applicable to the facts of this case. As the following sections will show, the bankruptcy court's decision was correct under both approaches.

In the unpublished case of Urica, Inc. v. Pharmaplast, S.A.E., 2013 U.S. Dist. LEXIS 203303, 2013 WL 12123230 (C.D. Cal. May 6, 2013), the United States District Court for the Central District of California explained that only a material breach of contract excuses further performance by the injured party. A breach is material if it goes to the essence of the agreement. Whether a breach of an obligation is material is generally a question of fact (at 16-18):

"'A party complaining of the breach of a contract is not entitled to recover therefor unless he has fulfilled his obligations.'" Wiz Technology, Inc. v. Coopers & Lybrand, 106 Cal.App.4th 1, 12, 130 Cal. Rptr. 2d 263 (2003) (quoting Pry Corp. of America v. Leach, 177 Cal.App.2d 632, 639, 2 Cal. Rptr. 425 (1960)). "It is elementary [that] a plaintiff suing for breach of contract must prove [he] has performed all conditions on [his] part or that [he] was excused from performance." Consolidated World Investments, Inc. v. Lido Preferred Ltd., 9 Cal.App.4th 373, 380, 11 Cal. Rptr. 2d 524 (1992) (citing Reichert v. General Ins. Co. of America, 68 Cal.2d 822, 830, 69 Cal. Rptr. 321, 442 P.2d 377 (1968)).

Generally, [*17]  only a material breach of contract excuses further performance by the injured party and entitles that party to terminate the contract. See Pry Corp. of America v. Leach, 177 Cal.App.2d 632, 639, 2 Cal. Rptr. 425 (1960) ("'In promises for an agreed exchange, any material failure of performance by one party not justified by the conduct of the other discharges the latter's duty to give the agreed exchange even though his promise is not in terms conditional,'" quoting Restatement (First) of Contracts, § 274 (1932) (emphasis added)); 1 B. Witkin, Summary of Cal. Law, Contracts, § 796 p. 719 (9th ed. 1990) ("The plaintiff must be free from substantial default in order to avail himself of the remedies for the defendant's breach").

A breach is material if it goes to the essence of the agreement. See Federal Deposit Ins. Corp. v. Air Florida System, Inc., 822 F.2d 833, 840 (9th Cir. 1987) ("[A] partial failure of consideration justifies rescission only if the failure is ''material,' or go[es] to the 'essence' of the contract,'" citing Wyler v. Feuer, 85 Cal.App.3d 392, 404, 149 Cal. Rptr. 626 (1978)); Taylor v. Johnston, 15 Cal.3d 130, 137, 123 Cal. Rptr. 641, 539 P.2d 425 (1975) ("[R]epudiation must be either with respect to the entire performance that was promised or with respect to so material a part of it as to go to the essence. It must involve a total and not merely a partial breach"); Taliaferro v. Davis, 216 Cal.App.2d 398, 412, 31 Cal. Rptr. 164 (1963) ("[W]here the consideration fails in whole or in part through the fault of a party whose duty it is to render it, the other party may invoke such failure [*18]  as a basis for rescinding or terminating the contract, provided the failure or refusal to perform constitutes a breach in such an essential particular as to justify rescission or termination," citing Crofoot Lumber v. Thompson, 163 Cal.App.2d 324, 332-33, 329 P.2d 302 (1958) ("The right of the injured party to claim release from obligations [and] to elect to terminate the contract depends upon the gravity of the breach")); see also Superior Motels, Inc. v. Rinn Motor Hotels, Inc., 195 Cal.App.3d 1032, 1051, 241 Cal. Rptr. 487 (1987) (a breach is material if it is "so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract," quoting Jacob & Youngs v. Kent, 230 N.Y. 239, 243, 129 N.E. 889 (1921) (Cardozo, J.))).52

Whether an obligation or breach of an obligation is material is generally a question of fact. Associated Lathing etc. Co. v. Louis C. Dunn, Inc., 135 Cal.App.2d 40, 49, 286 P.2d 825 (1955); see Superior Motels, 195 Cal.App.3d at 1051-52 ("'Whether a breach is so material as to constitute cause for the injured party to terminate a contract is ordinarily a question for the trier of fact,'" quoting Whitney Inv. Co. v. Westview Dev. Co., 273 Cal.App.2d 594, 601, 78 Cal. Rptr. 302 (1969)); see also Bemis v. Whalen, 341 F.Supp. 1289, 1291 (S.D. Cal. 1972) ("Whether a given breach is material or essential, or not, is a question of fact").

In Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018), the California Court of Appeal for the Fourth District explained that if the parties’ obligations are independent, the breach by one party does not excuse the other party’s performance. Instead, the non-breaching party still must perform and their remedy is to seek damages from the other party based on their breach of the contract. Where covenants of a contract are to be performed at different times, they are independent. Additionally, when a covenant or promise goes only to a part of the consideration, and the breach may be paid for in damages, it is an independent covenant or promise. Determining whether specific contractual obligations are independent or dependent is a matter of contract interpretation based on the contract’s plain language and the parties’ intent (at 1182-1183):

The obligations of the parties to a contract are either dependent or independent. (Verdier v. Verdier (1955) 133 Cal.App.2d 325, 334, 284 P.2d 94 (Verdier).) The parties’ obligations are dependent when the performance by

[25 Cal.App.5th 1183]

one party is a condition precedent to the other party’s performance. In that event, one party is excused from its obligation to perform if the other party fails to perform. (Kaupke v. Lemoore Canal & Irr. (1937) 20 Cal.App.2d 554, 557-558, 67 P.2d 407 (Kaupke); Starr v. Davis (1930) 105 Cal.App. 632, 635, 288 P. 706 (Starr).) If the parties’ obligations are independent, the breach by one party does not excuse the other party’s performance. Instead, the nonbreaching party still must perform and its remedy is to seek damages from the other party based on its breach of the contract. (

[236 Cal.Rptr.3d 553]

Fresno Canal & Irr. Co. v. Perrin (1915) 170 Cal. 411, 416, 149 P. 805 (Perrin); Hall v. Dekker (1941) 45 Cal.App.2d 783, 788, 115 P.2d 15 (Hall); Starr, at p. 635, 288 P. 706.)

"The law is settled that where covenants of a contract are to be performed at different times, they are independent, and the breach by one party of his covenant does not excuse the performance by the other party of his covenant or relieve him of liability for damages for a breach thereof." (Hallsupra, 45 Cal.App.2d at p. 788, 115 P.2d 15; see Perrinsupra, 170 Cal. at p. 416, 149 P. 805; Kaupkesupra, 20 Cal.App.2d at pp. 557-558, 67 P.2d 407.) " ‘The payment of money cannot be made dependent on the performance by the other party of a condition which, by the very terms of the contract, is not to be performed, or may not be performed until after the date at which the money is to be paid.’ " (Starrsupra, 105 Cal.App. at p. 635, 288 P. 706.) Moreover, " ‘[w]hen a covenant or promise goes only to a part of the consideration, and a breach thereof may be paid for in damages, it is an independent covenant or promise.’ " (Ibid.; see Verdiersupra, 133 Cal.App.2d at p. 334, 284 P.2d 94 )

Whether specific contractual obligations are independent or dependent is a matter of contract interpretation based on the contract’s plain language and the parties’ intent. (Verdiersupra, 133 Cal.App.2d at p. 334, 284 P.2d 94.) Dependent covenants or "[c]onditions precedent are not favored in the law [citations], and courts shall not construe a term of the contract so as to establish a condition precedent absent plain and unambiguous contract language to that effect." (Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 550, 54 Cal.Rptr.2d 128; see Verdier, at p. 334, 284 P.2d 94 ["To construe covenants as dependent is to work a forfeiture as to one party, and no obligation of a contract is to be regarded as a condition precedent unless made so by express terms or necessary implication"]; Starrsupra, 105 Cal.App. at p. 635, 288 P. 706 [" ‘Courts are disinclined ... to construe the stipulations of a contract as conditions precedent, unless compelled by the language of the contract plainly expressed’ "].) Where, as here, the parties present no extrinsic evidence on the meaning of their contract, we independently interpret the contract to determine whether its covenants are independent or dependent. (See Banning Ranch Conservancy v. Superior Court (2011) 193 Cal.App.4th 903, 915-916, 123 Cal.Rptr.3d 348.)

In Vacco Industries, Inc. v. Van Den Berg, 6 Cal.Rptr.2d 602, 5 Cal.App.4th 34 (Cal. App. 1992), the defendant argued that the plaintiff violated the employment agreement when it wrongfully terminated his employment and therefore discharged his contractual obligations to the plaintiffs under a non-compete agreement that was entered into a month after the employment agreement was entered into. The California Court of Appeal for the Second District disagreed and found that there was no reason to believe that any of the parties considered the performance of the obligations under these two agreements to be dependent. The Court also noted that as a practical matter, the non-compete agreement necessarily contemplated that the defendant's employment would at some point be terminated (at 49):

Van Den Berg next argues that Vacco's wrongful termination of his employment, in violation of the August 17, 1983 Employment Agreement, discharged his contractual obligations to Vacco and Emerson under the non-competition agreement of September 23, 1983. We disagree. There is nothing in this record to suggest that these two separate agreements imposed dependent obligations or that the performance of the one was a condition of an obligation to perform the other. Indeed, the non-competition agreement, as a practical matter, necessarily contemplated that Van Den Berg's employment would at some point be terminated. If such termination was wrongful, or in breach of the employment agreement, Van Den Berg would have a clear remedy in contract. 14 There is no justification for also excusing him from performing his promise not to compete with Vacco for a reasonable period following the sale of his stock which was given in exchange for the purchase of that stock, a matter quite apart from his employment. Finally, there is no reason to believe that any of the parties considered performance of the obligations under these two agreements as dependent. (See generally, 1 Witkin, Summary of Cal.Law (9th ed. 1987) Contracts, § 756, pp. 687-688.) The damage award Van Den Berg received for the wrongful termination fully compensated him.

We therefore conclude that the non-competition agreement is not prohibited by Business and Professions Code section 16600 and is fully enforceable in spite of Vacco's prior wrongful termination of Van Den Berg.

The Court also found that the plaintiff's wrongful termination of the defendant did not justify an application of the "unclean hands" doctrine. The Court explained that the plaintiff's misconduct in terminating the defendant's employment for a pretextual reason did not implicate the equities between the parties and to hold otherwise would encourage unfair competition and theft of trade secrets by every discharged employee who felt wronged by an employer's act (at 53):

[5 Cal.App.4th 53] The wrongful termination of Van Den Berg's employment can not justify application of the "unclean hands" doctrine anymore than it can excuse Van Den Berg's breach of the non-competition agreement. Plaintiffs obtained compensatory and injunctive relief arising from defendants' tortious misappropriation of trade secrets and Van Den Berg's breach of his agreement. Vacco's misconduct in terminating Van Den Berg's employment for a pretextual reason does not implicate the equities between the parties arising out of the wilful and malicious tortious misconduct alleged in plaintiffs' complaint and found by the jury to be true. The termination of Van Den Berg implicated only his contract for a term employment and had nothing to do with his obligation, and that of Kamer and Eastlack, to refrain from a tortious invasion of the proprietary rights of Vacco and Emerson. If the conclusion were otherwise, every terminated employee could justify and defend charges of theft and misappropriation of his former employer's proprietary interests by establishing breach or wrongful termination of an express or implied employment contract. Indeed, under defendants' argument the disgruntled employee's joint tortfeasors would also be allowed the benefit of such defense. Such a result finds no support in law or common sense.

We therefore conclude that plaintiffs are not barred from recovering compensatory and injunctive relief for (1) the misappropriation of their trade secrets and (2) Van Den Berg's breach of his non-competition agreement, because of Vacco's wrongful pretextual termination of Van Den Berg. 20 We emphasize that to hold otherwise would be to encourage unfair competition and theft of trade secrets by every discharged employee who felt wronged by an employer's act.

Authorities:
Oasis West Realty, LLC v. Goldman, S181781 (Cal. 2011)
Brown v. Grimes, 192 Cal. App. 4th 265, 120 Cal.Rptr.3d 893, 11 Cal. Daily Op. Serv. 1322, 2011 Daily Journal D.A.R. 16 (Cal. App. 2011)
Machado v. Myers, 39 Cal.App.5th 779, 252 Cal.Rptr.3d 493 (Cal. App. 2019)
W. Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP No. MT-19-1057-FBH (B.A.P. 9th Cir. 2019)
Urica, Inc. v. Pharmaplast, S.A.E., 2013 U.S. Dist. LEXIS 203303, 2013 WL 12123230 (C.D. Cal. May 6, 2013)
Colaco v. Cavotec SA, 25 Cal.App.5th 1172, 236 Cal.Rptr.3d 542 (Cal. App. 2018)
Vacco Industries, Inc. v. Van Den Berg, 6 Cal.Rptr.2d 602, 5 Cal.App.4th 34 (Cal. App. 1992)