Defenses Used in Breach of Contract Cases
If you find yourself a named defendant in a breach of contract lawsuit, your first step should be a consultation with a Parsippany breach of contract attorney to determine what your best defenses are.
Contesting the Facts
Your attorney will need to know the factual background that gave rise to the alleged breach. Generally, a plaintiff has to prove the following: 1) the formation of a contract between the litigants, 2) performance by the plaintiff, 3) failure to perform by the defendant, and 4) harm done to the plaintiff that resulted in some quantifiable loss. Thus, contesting the facts is a defense in itself because the burden of proving the breach still rests with the plaintiff.
Breach Was Minor and Immaterial
Incidentally to contesting the facts, you may be able to argue that even if there was a breach, it was a minor breach and therefore not material to the agreement. For example, if you own a landscaping company and landscape a commercial property to specification, but you forget to trim the trees down to an exact centimeter, that omission is most likely insufficient to hold you liable for damages since it was immaterial to the overall performance. It could be more advantageous therefore in some situations to simply admit breach and assert your defenses based on the plaintiff’s damages.
Still, you as the defendant, will be able to put on evidence in the form of “affirmative defenses” when a plaintiff seeks damages along with “equitable defenses” if plaintiffs are seeking equitable remedies such as specific performance, an injunction, or reformation.
Below are 15 common contract defenses and an explanation of how they function.
- Unethical, Unlawful, or Bad Faith Behavior. The plaintiff acted unethically, unlawfully, or in bad faith. For example, the plaintiff misrepresented an important fact that was the basis of the contract, a fact that could have induced you to sign it. This is referred to as the doctrine of unclean hands and is grounded in public policy to not award damages to those who have acted in bad faith.
- Laches. The plaintiff delayed pursuing a claim against you for an excessive period of time and consequently, you are prejudiced in defending the claim. This defense of laches is independent of the statute of limitations in that it requires examining the reasons for the delay in filing the claim, how the delay affected you, and the length of the delay.
- Unconscionability. Unconscionability is a defense a defendant may raise when the provisions of the contract are excessively unfair to one of the parties. Courts will evaluate if either the defendant didn’t have a meaningful choice in the agreement or the terms are so blatantly unfavorable that it would create an undue hardship to enforce it.
- Estoppel. When one party acts in a manner or communicates that performance has been excused in the agreement, and the other party relies on that statement or action, the first party may be prevented from later denying that statement or action and claiming the other party breached the agreement. This is known as the doctrine of equitable estoppel. For example, if a service provider routinely accepts late payments from a customer, it would be prevented from canceling the service based on nonpayment since the customer was reasonably led to believe the late payments were acceptable.
- Statute of Frauds. The contract had to be documented in writing because of the nature of the agreement (e.g. a real estate transaction).
- Mutual Mistake. Both parties made a mistake as to an existing material fact of the bargain. If Buyer and Seller both think that a painting is an authentic work when it is in fact a copy, this is a mistake and the contract is voidable. But, if one of the parties knew or should have known that the painting was a copy, that party would “bear the risk” of the mistake and the non-mistaken party could be entitled to damages.
- Duress or Fraud. The defendant was under duress or fraudulently induced to enter into the deal. For example, if someone was immediately threatening harm to one of your family members all while forcing you to sign a contract, that contract would in all likelihood not be enforceable.
- No Privity. The parties do not have a binding contract between each other because they are not in privity of contract. This means that if a contractual relationship never existed, no contract can be enforced. This defense is common in products liability cases.
- Accord and Satisfaction. The parties agree to a different form of performance of the contract that discharges the contract. This is referred to as accord and satisfaction and is generally accepted where (1) an express or implied new agreement is agreed upon to satisfy a current obligation with an alternative form of obligation from what the parties agreed to in the original contract, and (2) the parties perform the new contract.
- Impossibility. It has become impossible to perform the contract through an unforeseeable event or act of nature (e.g. you are hired to install kitchen cabinets and the house burns down).
- Illegality. The contract is illegal (e.g. you have a contract to traffic drugs).
- No Consideration. The contract lacks consideration. This means that one party was not obligated to do or refrain from doing anything (e.g. a gift).
- Waiver. The party waived its rights to enforce the obligation. Waiver is the intentional relinquishment of a known right. Waiver can be implicit, but most thoroughly drafted contracts will contain provisions that waivers must be explicit.
- Absence of Condition Precedent. A condition precedent to activating performance obligations did not occur. A condition precedent is an event that must occur before a party’s right to enforce an obligation can arise. A defendant must be mindful that liability will generally not arise if the condition is not satisfied (e.g. obtaining the requisite financing for purchasing property), but failure to perform once that condition is satisfied may render the defendant liable (e.g. failure to pay upon obtaining financing).
- Bankruptcy Discharge. Discharge in bankruptcy is an affirmative defense that establishes a defense to any breach of contract claim based on a pre-petition debt. For example, if a creditor sues you after you file a Chapter 7 bankruptcy and the basis of that claim is amounts owed under contract before you filed, this defense would bar recovery.
If you are involved in a contract dispute, call 973.265.6100 to speak with a Parsippany breach of contract attorney at Snellings Law LLC. Our breach of contract attorneys handle all types of contract disputes including disputes over sales agreements, franchise agreements, employment contracts, and commercial leases.