What Are the Defenses to Breach of Contract?
Understand your defenses if you’re accused of breaching a contract
on September 29, 2022
“Breach of contract can go down in any number of ways,” says New York business attorney Sarah Gold.
In general, “One party doesn’t do what they promised or were supposed to do” in the performance of the contract.
If you’re sued or threatened with a breach of contract lawsuit, there are several potential defenses you can raise.
This article will explain what a breach of contract is and cover some of the most common defenses to breach of contract. It’s best to raise as many defenses as possible.
Once you understand your potential defenses, it’s a good idea to speak with an experienced contracts lawyer about your situation for the best outcome in your case.
What Is a Breach of Contract?
A contract can be about anything, from buying real estate to hiring someone to watch your pet. A valid contract obligates two or more parties to perform (or not perform) certain actions.
If one of the parties fails to perform on their contractual obligations, they have breached the contract. Breaches typically involve:
- Not performing at all
- Not following the terms of the contract
- Not performing in the agreed-upon timeframe
As Gold says, a breach of contract can come about in many ways.
Sometimes, “there can be a breach before the contract even gets going,” she says. For example, “if [the agreement] is a time-sensitive thing, and it’s supposed to happen like six weeks from now, but in week four the party’s warehouse burns down, then technically you have what’s called an anticipatory breach.”
An anticipatory breach means “that [the contract] is going to go bad, but we haven’t hit the deadline yet.”
Another type is “mutual rescission, meaning that both parties have decided they don’t want to go through with the contract anymore. This is effectively a breach of contract, but both parties agree to disagree and walk away,” says Gold.
Material and Immaterial Breaches of Contract
Some breaches of contract are more severe than others.
Material breaches are so significant they completely ruin the contract.
For example, say two parties agreed to a real estate transaction. The contract and other legal documents are completed, and the buyer pays the seller. Then the seller backs out.
The seller’s refusal to sell is a material breach. It undercuts the entire point of the contract and leaves the buyer in a terrible position.
Immaterial breaches are relatively minor. They are delays, inconveniences, or small deviances from the contract terms that can be fixed, saving the contractual agreement.
For example, say you order a pair of expensive sunglasses for your spouse’s birthday. You are guaranteed the sunglasses two days before the date. However, the sunglasses don’t arrive until three days after the birthday.
While the delay is an inconvenience, it doesn’t ultimately deprive you or your spouse of the enjoyment of the sunglasses.
How do you know if a breach is material or immaterial? There is no hard and fast rule to determine this, and courts look at many factors. For example, if the breach could be fixed, then it was probably immaterial.
Different remedies are available for a breach of contract, including:
- Monetary damages
- Specific performance, or getting a court to order the breaching party to do what they originally promised
- Cancellation, when the non-breaching party legally backs out of the contract
If you’re involved in a contract dispute over a breach, it’s a good idea to speak with a lawyer as soon as possible. A lawyer will be able to look at the facts of your situation and asses if the alleged breach is material or immaterial and the defenses to be raised.
Breach of Contract Defenses
A breach of contract case is when one party files a civil lawsuit against the other party for breaching the contract terms.
When this happens, the party accused of the breach can raise various defenses.
As Gold says, “There are certainly defenses to breach of contract.”
For example, take “the case of a widget or something that has actually been shipped but was never delivered.” In this case, “depending on what the terms of the contract say, the defense might be: you didn’t insure it; therefore, the minute it left our warehouse, that was on you. So, the fact that you never got it—not our problem.”
Another defense is “you effectively couldn’t do it” because of reasons outside your control. “For example, during the Covid pandemic, certain things couldn’t occur because of governmental interference,” says Gold.
“Or you can invoke an ‘act of God’ or [natural disaster] such as a hurricane” that prevents you from performing your part of the contract, she says.
There are ways to account for these eventualities in a contract “if you’re thinking that far ahead,” says Gold.
Other excuses don’t work as a defense against breaches.
For example, “If a company were to make a contract and it turns out it’s going to be really expensive for them to complete it, that’s called commercial impossibility.” Usually, “you can’t get out of a contract for that.”
“You can try, but [the cost is] kind of on the person who agreed to it,” says Gold. “You should have foreseen [the expenses involved]. So, while it does come up as a possible defense to breach of contract, it usually doesn’t work.”
There are several other affirmative defenses to a breach of contract claim. Many argue that the contract was invalid in the first place, or that the party had a good reason not to perform.
Common defenses include:
- Legal incapacity. A party may argue they lacked the legal capacity to enter a contractual agreement in the first place. Individuals considered to lack capacity include minors (under 18 years of age), individuals with mental disabilities, or those who were coerced while under the influence.
- Statute of limitations. Every state has statutes of limitations, which are laws that set deadlines for bringing a lawsuit. If the person who wants to sue misses the legal deadline, they are barred from bringing a lawsuit. In some cases, the party accused of breaching a contract can point out the deadline for a lawsuit has passed.
- Statute of frauds. Not every contract must be in writing. But some must. A statute of frauds is a law that says what types of contracts must be in writing. For example, contracts for real estate, items over $500, or take more than a year to complete must be in writing and signed by all parties involved. If these contracts aren’t in writing, they’re invalid. If you have breached an oral contract that should have been in writing, you can argue the contract was invalid in the first place because it violated the statute of frauds.
- Mutual mistake. This occurs when both parties are mistaken about the contract’s essential terms. When this happens, the party accused of a breach can point to this mutual mistake as their reason for backing out of the contract.
- Lack of consideration. Every contract must involve exchanging something of value for something else of value. The thing of value is known as “consideration.” If there was no consideration, there was no valid contract. Instead, you might have had a gift, where one party simply gives something of value to someone else while receiving nothing in exchange.
- Impossibility, impracticability, or frustration of purpose. These terms are related but distinct concepts. In general, these defenses allege the breaching party could not perform their contractual obligations because of factors beyond their control. They would have performed but couldn’t because circumstances made it impossible or impracticable to do so. Proving this will be highly fact sensitive.
- Estoppel. Say a party agrees to a month-long delay in the delivery of products. The other party acts in good faith based on this statement. The first party can’t reverse course later and claim the delay was a breach. The party accused of a breach can point to the first party’s earlier statements accepting the delay and argue they are “stopped” from making a breach of contract claim.
- Duress. The breaching party can argue they were coerced and had no free will in the formation of the contract and the contract was, therefore, invalid in the first place.
- Fraudulent inducement. If a contract was based on misrepresentation, coercion, or undue influence, it’s invalid.
- Illegality. If the contract is for something illegal, it’s unenforceable. The breaching party could argue that the contract was illegal.
- Unconscionability. If a contract involves unfair bargaining power between the contracting parties or other unfair or manipulative practices, it may be deemed unconscionable and invalid.
Questions for a Contracts Attorney
If you are facing contract litigation, speak with a contract attorney about your case and potential defenses to a contract breach as soon as possible.
Many lawyers provide free consultations for potential clients. These meetings let you get legal advice and decide if the attorney or law firm meets your needs.
To get the most out of a consultation, ask informed questions such as:
- What are your attorney’s fees and billing options?
- Did I breach the contract?
- What are my best defenses against a breach of contract?
- Can I settle this contract dispute without a lawsuit?
- Is it possible to settle the dispute before it goes to trial?
Once you have met with a lawyer and gotten your questions answered, you can begin an attorney-client relationship.
Look for a contracts attorney in the Super Lawyers directory for legal help.