Legal Question in Business Law in California

Re: Which state laws governs a verbal contract ?

I agree completely with Mr. Whipple's answer, but there are a few points I want to add.

There are several different factors which courts must use when deciding whether they have jurisdiction, and it is quite common for the courts of two or more states to have jurisdiction over the same case. In such instances, the party who files first gets to chose one of the available states, though there are a number of reasons why another party might be able to have the case moved.

One major factor is where the breach occurred; the courts of the state where it happened will usually have jurisdiction. The state where the defendant lives or operates will also usually have jurisdiction. It doesn't usually matter much where the plaintiff lives.

(Contracts often specify which state's courts will have jurisdiction, but it seems that is not the case here.)

Since the Delaware plaintiff is suing you and claiming you breached here, California courts likely have jurisdiction over the claim. You most likely cannot bring a new case in Delaware (or wherever the corporation actually does business) now that the California case has begun; instead, you probably need to bring a cross-complaint in California.

If the amount in question is more than $75,000, if the corporation has no substantial presence in California and if you act quickly, you have the right to move the case from state to federal court. You might be better off leaving it where it is, but this is an option.

What I have said so far deals only with where the case may be filed and not with which state's laws will govern. As Mr. Whipple points out, the laws of one state can govern even where the case is pending in a different state. Laypeople are often surprised to hear this, but such cases are reasonably common. I would need to know more about the facts before I could say which state's law most likely governs here.

Re: Which state laws governs a verbal contract ?

"Personal jurisdiction" and "governing law" are related concepts, but one doesn't necessarily control the other. In your situation, there's a high probability that the contract should be interpreted according to the laws of the state where the services were to be performed, so you could end up with a California court having to interpret and apply Delaware law.

Are you sure the plaintiff was in Delaware and that the services were to performed there? As you probably know, most Delaware corporations have little more than a mail drop in that state, and actually operate elsewhere.

Also, don't assume without prior inquiry that California law is more favorable to your position. More often than not, laws of the states on routine contract matters are pretty close, and on the few points where they differ, one can't predict before doing research whether one is more or less favorable to your client's position than the other.