In California, oral agreements are as enforceable as written ones, although oral ones are more difficult to prove, and there can be doubt about what was agreed to. In California, you have 4 years from the date of breach to sue on a written contract, but only 2 years on an oral or implied one. An implied in fact contract, or quasi-contract, arises from the parties' conduct.
Without a contract in writing, you have to prove the contract and the breach through oral testimony, other witnesses to the deal, if there are any, receipts, confirming e-mails or other correspondence mentioning your deal, etc. Memories are unreliable and fade over time, and people disappear, so it's always best to confirm the specifics of all the important terms -- WHO, WHAT, WHEN, HOW, WHAT HAPPENS IF THERE'S A BREACH -- in a written agreement signed by the parties to reduce uncertainties. The rule of thumb is, if it's an important part of the deal, include it in the contract.
What's a breach?
The elements of a breach of contract claim are:
1) the contract;
2) plaintiff's performance or excuse for nonperformance;
3) defendant's breach; and
4) damage to plaintiff.
You cannot be in breach yourself while claiming that the other party breached, unless your performance was made impossible by the defendant. Not every hypertechnical lapse is a breach; whether or not a breach is "material" enough to be actionable depends on the facts. Similarly, the "no harm, no foul," rule generally applies, so you must be actually damaged to make a valid claim.
Legal fees - an incentive to perform, and an easier way to find a lawyer if performance fails.
In some states, attorney's fees spent in enforcing your contract rights are automatically recoverable. Not so in California, where you automatically recover only some of your court costs, but not your lawyer's fees. So include in your contract that the parties agree that in the event of a dispute, the winning party gets awarded their legal fees and costs. That way, the parties have an incentive to perform (or a disincentive to fail to perform), because they know that if they breach, they're on the hook for their own lawyer's fees and most probably the other side's lawyer's fees as well.
Alternate dispute resolution, or ADR can be a cheaper, quicker and easier way to resolve a contract dispute.
A breached contract doesn't have to mean suing and going to court. Most disputes settle, and shortcuts to settlement include mediation and arbitration, which can both serve to educate the parties about the strengths and weaknesses of their claims, and speed up resolution. Add this term to your contract to make sure the parties use it.
Mediation and arbitration can be binding or non-binding. if you want quicker resolution and will take the chance that your mediator or arbitrator(s) is competent, choose a binding method. If you're less sure, opt for a non-binding procedure, and be prepared to go through more than one procedure if a party doesn't like the result of the first procedure.
Mediation is often seen as most appropriate for continuing relationships, like ongoing contracts the parties wish to preserve, family disputes, neighbor disputes, and similar situations. In contrast, arbitration is generally used for disputes that contemplate an end to the relationship.
Additional resources provided by the author
Southern California Mediation Association
American Arbitration Association