Affirmative Defenses to Breach of Contract

In a contract dispute over a breach of contract, you should raise as many legal defenses as possible, including "affirmative defenses." It's usually not enough to simply deny legal wrongdoing. You must respond with every plausible argument that justifies your position. And, if you don't raise defenses in the early stages of a breach of contract lawsuit, you might be prevented from raising them later.

What Is an Affirmative Defense to a Breach of Contract Claim?

Most defenses to a breach of contract claim are referred to as "affirmative defenses." An "affirmative defense" means that the party raising the defense (the person suing for breach of contract) has the burden of proving the defense, if the dispute goes to trial.

An affirmative defense doesn't contest the primary claims or facts, for example, that there was a breach of contract. Instead, this kind of defense asserts mitigating facts or circumstances that render the breach claim moot. In other words, it's like saying, "Even if I breached the contract, the other party shouldn't win the lawsuit."

For example, let's say that Dodd, a teenage singer, fails to show up for a concert and is accused of breaching his contract to provide entertainment services. Regardless of whether he breached the agreement, Dodd can assert the affirmative defense that he lacked the capacity to enter into the contract in the first place because he's a minor. A court could throw out the contract because Dodd had a defense against performing his end of the contract.

Common Affirmative Defenses to a Breach of Contract Claim

How you frame your legal defenses in a breach of contract lawsuit is limited only by your lawyer's imagination (and your ability to bankroll legal fees). Some of the most common defenses to contract breaches are listed below. These defenses can make a contract unenforceable or invalid.

The Contract Was Supposed to Be in Writing

If the other side argues that an oral agreement should be enforced against you, you might be able to defend yourself by claiming that a state law (known as the "statute of frauds") requires the type of contract to be in writing.

All states have adopted most of the Uniform Commercial Code (UCC), a set of model rules for commercial activities. The UCC specifically addresses which kinds of contracts must be in writing to be enforceable. Specifically, the following types of contracts must be in writing to be valid:

• contracts more than $500 for the sale of goods
• lease contracts for goods requiring total payments of $1,000 or more (importantly, this section doesn't apply to commercial real estate leases), and
• agreements creating a security interest in property.

If your contract falls under one of these categories and isn't in writing, then you likely have a valid affirmative defense to a breach of contract.

The Contract Is Indefinite

If the essential terms of the contract were never agreed upon, you could argue that the contract is indefinite. When a contract is deemed indefinite, it generally means that either:

• the parties didn't consider the deal to be final, or
• a court couldn't discern the essentials, even by implication (for example, if it's not clear how long an agreement should last or what the specifications are for a construction project).

Agreements to agree (such as letters of intent or agreements in principle) are usually considered indefinite and therefore unenforceable. Although courts will require the parties to act in good faith to reach an agreement.

The Contract Contained a Mistake

You can defend yourself by proving that a mutual mistake was made as to an essential fact in the contract—for example, both parties were mistaken as to the authenticity of a painting. But to throw out the contract under a mistake of fact, you must prove that:

• the mistake was about a basic assumption of the contract
• the mistake significantly affected the contract negotiations, and
• the party affected by the mistake couldn't have assumed the risk of the mistake.

This contract defense also works when just one side made a mistake, as long as the mistake either made the contract unconscionable (discussed below) or the other side knew about or caused the mistake.

Be aware that you can't use this defense when referring to a mistake in judgment by one party ("Oops, I could have gotten so much more for my painting!").

You Lacked the Capacity to Contract

If you lacked capacity (that is, you couldn't understand what you were doing when you entered into the deal, as discussed in the example above), the contract might be voidable. This defense is most likely to succeed in the case of minors and those with mental incapacities.

You Were Fraudulently Induced to Sign the Contract

A contract will be invalid if it was induced either:

• by lies
• under duress ("Sign this or we'll take your cat"), or
• by a trusted person's undue influence (your real estate agent advises you to buy because she secretly gets a kickback from the seller).

Basically, courts don't like to honor contracts where one party clearly didn't have free will in the matter.

The Contract is Unconscionable

A contract won't be enforced if it's grossly unfair. This type of defense almost always comes up in situations where the bargaining power is severely imbalanced (as in a contract of adhesion). Oftentimes, the party with more power takes advantage by forcing unfair conditions, clauses, or waivers on the other party.

If a court finds that a contract is unconscionable, they can throw out the entire contract or they can void or re-write the parts of the contract that it finds to be unconscionable.

Estoppel

When one party makes a statement excusing performance of the agreement and the other party relies on that statement, the first party can be prevented from later denying that statement and claiming a breach. In other words, if you tell the other side that they don't have to perform part of the contract, you can't later change your mind and claim they breached the contract by nonperformance. If you try to later hold the other side responsible for the part of the contract that you already excused, they can claim a defense of estoppel.

For example, suppose you have a graphic design business. You contract with a local business to create their logo, letterhead, and signage. After creating their logo and letterhead, the business decides that they only need one sign, instead of the agreed-upon six. You're fine with the new plan and offer a discounted price as a result.

A few weeks after you've completed the work, the business decides they do need all six signs. They point to the contract and claim that you owe them five more signs. You can assert the defense of estoppel. You relied on the business's statement that they only needed one sign instead of six, and even lowered your price.

The Contract is Illegal

A contract is unenforceable if its object or the thing bargained for is illegal—for example, a contract that violates tax laws or requires the destruction of records. You can't create a contract to break the law.

Though sometimes contracts that might indirectly aid illegal purposes can be enforced. For example, an agreement to supply gambling machines, even though they might be illegal in some states, could be enforced.

Sometimes, a court will sever the illegal aspect from the agreement, leaving the rest of the contract enforceable.

The Catch-All Defense: Arguing in the Alternative

If you've been sued for breach of contract, the law permits you to claim as many alternative defenses as you want, even if they contradict each other.

For example, you might argue that:

• the contract is invalid or unenforceable
• you performed as required by the contract, and
• alternatively, that your failure to perform was justified by the other party's actions.

But these arguments can't all be true, of course. (It's a little bit like the criminal defense attorney who argues his client was 100 miles from the scene of the murder and, alternatively, that the murder was in self-defense.)

Tips for Defending Against a Breach of Contract Claim

Typically, when one party breaches a contract, the breaching party has to make things right with the harmed party. For example, if your restaurant business agreed to cater an event but failed to show up, then you'd likely need to pay money damages to the other side to make them whole again. Or, if your business agreed to print 30 red shirts but you only printed five, you'd need to print the other 25 shirts or pay any costs the customer incurred to get the shirts printed elsewhere.

But as we've already covered, you can assert a defense to your nonperformance under the contract. Follow the tips below on how to defend against a breach of contract claim.

Get Everything in Writing

As with most disputes in life, it's better to have a written record of your communications with the other side. If you can back up your defense with something in writing, then you'll increase your chances of winning if matters go to court.

For example, let's look at the defense of estoppel. If you can show written proof that the other side excused your nonperformance (such as in an email or text message), then they can't claim that their waiver of your nonperformance never happened. Putting everything in writing can also be helpful when you're asserting a mistake defense. If you can show written negotiations between you and the other side where a mistaken fact was relied upon, it'll be much easier to prove your case.

Try to Resolve the Issue Amicably

Resolving a breach of contract claim quickly and amicably is always ideal. Before matters escalate to a court filing, try to work your issues out in a way that leaves both sides satisfied. You might have a defense to a breach of contract claim, but you don't necessarily want to devote the necessary time and money to fighting the claim.

You can either:

• forego your defense claims and try to fix the breach
• renegotiate and amend the agreement, or
• explain to the other side that you would likely win in court because you have a valid defense to breaking the contract.

If the other side knows that you'll just assert a particular defense against their breach of contract claim, they might not be willing to risk losing in court. Communicating your legal defenses can motivate the other side to negotiate a settlement or drop the matter completely.

Timely Reply to Communications from the Other Party

If you've breached a contract or the other side thinks you have, you might've received a notice of the breach. Alternatively, if you believe someone else violated the terms of an agreement, you could be the one sending out the notice of the breach.

If you've received a notice of breach, don't ignore it. The other side could be mistaken, or you could have an easy way to fix the issue. Typically, a notice will identify the part of the contract that the other side thinks you violated. In addition, they'll set out their expectations for how to fix the breach. So, you should review your contract carefully to determine whether you have in fact breached the contract. If you haven't, then your job just became much easier.

If you believe you have breached the contract, consider your options. Do you want to try to fix the breach? Does the contract already dictate terms for how to resolve a breach? Do you have a defense to your breach?

Whatever the case, you should respond to the notice within a reasonable time. If you have a defense, raise it in your response. Offer as much clarity. For example, if you believe that your oral agreement needed to be in writing to be in valid, point them to the state law that backs up your case.

If the issue isn't simple, you might want to consider speaking with a lawyer. They can help you figure out whether you have a valid defense to your breach of contract. They can also help you draft a reply to a breach of contract claim and provide you with representation in court.

If you'd like to learn more about contract disputes, check out our book Contracts: The Essential Business Desk Reference, by Rich Stim (Nolo).