Affirmative Defenses to Breach of Contract in California
Affirmative defenses for breach of contract, also known as particular defenses or performance excuses, are defenses in which evidence is introduced that, if proven by the defendant, will eliminate or mitigate liability for the defendant, even if the defendant is found to have breached the contract. An affirmative defense is essentially an admission to breach of contract, but with a valid reason that lessens or excuses the defendant of liability.
If you’re wondering what the affirmative defenses to breach of contract are in California, or looking to draft an answer to a complaint for breach of contract with affirmative defenses, look no further. Keep in mind that the information provided in this blog post is for informational purposes to be used in consultation with a California business attorney who is well-versed in breach of contract law.
What is a Contract under California Law?
Before you look into the affirmative defenses, it is important to determine if the elements of a contract have been met since the plaintiff cannot recover without providing their case for breach of contract.
The legal definition of a contract is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement (Second) of Contracts § 1 (1981). Upon consideration, an obligation is created to do (or not do) a certain thing with the potential for civil action if proper performance has not occurred. A contract under the California Civil Code is also required to have four elements: “parties capable of contracting, their consent, a lawful object, and a sufficient cause or consideration.” 14 Cal. Jur. 3d Contracts § 3.
Depending on the type of contract, it may not need to be a formal, written agreement. Rather, a contract exists when “parties intend that an agreement be binding, the fact that a more formal agreement must be prepared and executed does not alter the validity of the agreement.” Id. at § 155. With the exception of contracts that fall under the Statute of Frauds, a valid and enforceable contract may be oral, written, or a combination of both.
Failure to State a Claim for Breach of Contract Affirmative Defense
A breach of contract occurs when there is a failure, with no legal excuse, to perform what is required by all or part of the contract. A breach of contract is separated into two different categories under contract law: material and immaterial. A material breach, also known as a total breach, is a failure of substantial performance on the contract. A material breach occurs when the duty that was not performed is so essential that the contract cannot be fulfilled. By contrast, an immaterial breach, or partial breach, occurs when a majority, but not all, of the contractual duties have been performed. In this case, performance of the contract is still required and the contract cannot be terminated. You can, however, still seek damages for a partial breach.
Accordingly, defendants seeking to allege that the elements of a breach of contract have not been met for reasons including an immaterial breach should include a general denial in their answer. See Cal. Code Civ. Proc. § 431.30. A general denial alleges in the introduction of the answer that the defendant “generally denies each and every allegation of the complaint.” Note that this is applicable only to an unverified complaint.
Even further, a defendant may wish to allege the affirmative defense of failure to state a claim, which often reads as follows: “Defendant alleges that the complaint fails to state facts sufficient to constitute a cause of action against the defendant.” Be aware that many practitioners consider this to be unnecessary, as the failure to meet the elements of breach of contract is not technically a “defense,” but rather a required factor for plaintiffs to prevail in their case. Nonetheless, this is commonly done.
Examples of Affirmative Defenses to Breach of Contract
Although this is by no means an exhaustive list, the following are common examples of affirmative defenses to breach of contract claims. See generally Cal. Prac. Guide Civ. Pro. Trial Claims and Def. Ch. 9(I)-C. Keep in mind that no two breach of contract claims are exactly alike and the unique circumstances of each case will dictate the final outcome. Consult an experienced breach of contract attorney who can evaluate your situation and construct a strategy to properly address the affirmative defenses that may be applicable in your breach of contract claim. Be careful to use this list only on consultation with a lawyer, as an answer listing boilerplate affirmative defenses can be subject to a motion to strike.
Statute of Limitations
Remember that lawsuits must be filed timely, or they may be forever barred. A breach of written contract must be filed within four years of the breach, while an oral contract lawsuit must be filed within two years of the breach. The statute of limitations for fraud is three years from discovery. Note that determining when the breach occurred requires a skilled litigation attorney. This defense is perhaps the ultimate defense as it generally appears on the face of the complaint and arises in numerous circumstances.
Failure to Mitigate
One of the most common defenses, especially in lease breaches, is the failure to mitigate damages. All parties have a duty to reduce damages when at all possible. This can reduce the plaintiff’s award by any damages they could have avoided through reasonable efforts.
Fraud, Deceit, and Misrepresentation
Fraud in a contract consists of the promisor giving apparent consent against his or her free will. Furthermore, a “promise made without any intention of performing it constitutes fraud” Union Flower Mkt. v. S. Cal. Flower Mkt. (1938) 10 Cal. 2d 671, 676.
If you have questions regarding the difference between fraud, deceit, and misrepresentation, our blog post on fraud provides a detailed explanation of each of these commonly confused legal terms.
Statute of Frauds
As defined in our blog post on the Statute of Frauds, this legal doctrine provides that certain types of contracts must be signed by the party to be charged. The Statute of Frauds may be an affirmative defense for a contract that falls under the Statute of Frauds but fails to meet the requirements.
Duress consists of one party using unlawful tactics to obtain the consent of another party resulting in “disproportionate bargaining power and coercive circumstances” Philippine Exp. & Foreign Loan Guarantee Corp. v. Chuidian, (Ct. App. 1990) 218 Cal. App. 3d 1058, 1080.
Failure of Consideration
Consideration in a contract is the benefit that the parties are bargaining for (most often money) in exchange for an item or service.
If the performance serving as consideration is not delivered as agreed upon, failure of consideration can serve as an affirmative defense. Failure of consideration arises due to events that occurred after the contract was executed.
Lack of Consideration
Lack of consideration occurs when there is a lack of mutuality between parties because obligations are not imposed on both parties. It happens, if at all, immediately after the execution of the contract.
Equitable Estoppel occurs when a party has deliberately or intentionally misrepresented information, thereby causing the party asserting estoppel to detrimentally rely on this false information.
Judicial Estoppel, as defined by the Federal Litigator newsletter, “prevents a litigant from adopting one position, securing a favorable decision, and then adopting a contradictory position for legal advantage later on.” 31 No. 12 Fed. Litigator NL 8.
Res Judicata / Claim Preclusion
Res Judicata, also known as Claim Preclusion, precludes (prevents) re-litigation of the same cause of action between a claimant and the same defendant. There are three requirements to claim preclusion:
- Both cases must be brought by the same claimant against the same defendant
- The first case must have ended in a valid judgment on the merits
- The claimant asserted the same claim in both cases
Collateral Estoppel / Issue Preclusion
Collateral Estoppel, or Issue Preclusion, is similar to Res Judicata but instead focuses on factual or legal issues and not the entire claim. Collateral estoppel precludes re-litigation of issues that have already been decided upon in prior proceedings. Collateral estoppel has five requirements:
- The first case must have ended in a valid judgment on the merits
- The same issue was already litigated and determined
- The issue was essential to the first case
- Must be used against someone who was a party (or in privity with a party) in the first case
- There must not be a due process issue in asserting the claim
Note that collateral estoppel (issue preclusion) prevents parties from re-litigating issues that have already been litigated, while Res Judicata (claim preclusion) bars parties from litigating all issues that were or could have been litigated in the original claim.
Promissory Estoppel occurs when a promisor makes a promise upon which he or she reasonably expects reliance by the promisee, but the promisee acts or refrains from acting such that reliance is detrimental. Without enforcement of the promise, injustice will occur. Essentially, promissory estoppel employs equitable principles that satisfy the requirement that consideration must be given in exchange for a promise to be enforced when there is otherwise no consideration.
Estoppel by Laches
The Doctrine of Laches, also known as Estoppel by Laches, provides a party with an equitable defense to long-neglected rights. Neglecting these rights caused the defendant to believe that plaintiff was not trying to collect its alleged debt. Unlike the Statute of Limitations, the Doctrine of Laches is concerned with why a claim was delayed and not how long one has to file a claim.
Under a waiver defense, the plaintiff has voluntarily given up any rights given to him or her by the contract. This allows the defendant to be released from liability of the contract. Waiver can consist of an action or a deliberate failure to act.
Breach by Plaintiff
Plaintiff did not comply with the contract’s terms by changing its terms, failing to give the defendant credit for payments made, agreeing to change the contract but not honoring the new agreement, failing to make payments under the defendant’s insurance plan, or breaching the implied warranty of good faith and fair dealing, thereby denying the defendant benefits under the contract.
No Breach by Defendant
Plaintiff is not entitled to the money it is demanding because defendant claims it has done everything as required by the contract.
Accord and Satisfaction
An accord and satisfaction substitutes a preexisting agreement with a new agreement to the satisfaction of all parties. However, the new agreement does not entirely extinguish the obligations of the old agreement until there has been performance on the new agreement. The old agreement therefore remains suspended but intact. If the terms of the new agreement are not met, the creditor may still sue on the old agreement. Accord and satisfaction is different than novation.
Frustration of Purpose
Frustration of purpose occurs when performance is not necessarily impossible or impracticable, but is pointless. When there is “destruction of the value of performance wholly outside the contemplation of the parties” the promisor may be excused. Lloyd v. Murphy, (1944) 25 Cal. 2d 48, 53. In other words, it could be done, but what’s the point?
An example of frustration of purpose would be renting a rooftop to watch a king’s coronation ceremony. However, at the last minute the king falls ill and cancels the ceremony. You can still rent the rooftop, but the reason for doing so is no longer relevant.
Illegality refers to contracts or provisions that contravene public policy, thereby voiding the contract.
Impossibility occurs when it is impossible to fulfill a term or contract, so it is considered void.
An example of impossibility would be entering a contract to rent a theater. However, the theater burns down before your rental date. Since it would be impossible to rent out this burnt down theater, an affirmative defense to this contract would be impossibility.
Impracticability is the inability to perform a contract due to unnecessary or unreasonable difficulty or expense. Courts have found that “a thing is impracticable when it can only be done at an excessive and unreasonable cost.” Habitat Tr. for Wildlife, Inc. v. City of Rancho Cucamonga, (2009) 175 Cal. App. 4th 1306, 1336, (quoting Mineral Park Land Co. v. Howard, (1916) 172 Cal. 289, 293).
Novation occurs when a new agreement replaces an old one entirely. The old contract is then considered extinguished. Novation is different than accord and satisfaction.
Lack of Privity
A party can only sue for breach of contract if they are in privity with the opposing party, meaning there must exist a relationship between parties with a mutual interest. An exception to this rule would be third party beneficiaries, such as creditors, which are not required to be in privity with any parties.
Discharged in Bankruptcy
If you have recently filed for bankruptcy, you may be able to use discharged in bankruptcy as an affirmative defense. You can either stay or suspend the action until your bankruptcy case is finished. Or, if the court ruled that you do not have to pay the debt, the case may be dismissed altogether.
If you have complied with most of the contract, with the exception of a small part, this may serve as an affirmative defense to breach of contract.
Prevention of Performance
If you were prevented from complying with the contract, either by the plaintiff or by someone else, this may be an appropriate affirmative defense.
A party that is not yet in breach but provides anticipatory repudiation, or a communicated intention not to perform, can be sued for breach of contract even if performance has not yet happened. In general, once a party knows that the other party has committed anticipatory repudiation, they are required to mitigate to reduce money spent on the project.
Cancelation of Contract
The contract was already canceled, so there is no longer a contract to enforce.
Rescission / Return of Goods
Rescission of a contract involves cancellation of the entire contract. If there is no contract, there is no obligation between parties. Returning goods effectively rescinds a contract and cancels obligation as well.
If the party entering into the contract was under 18, mentally or physically incapacitated, disabled, or otherwise lacking the legal capacity to understand the contract, this can be an affirmative defense.
A condition precedent requires an event to occur (unless its nonoccurrence is excused) before a contractual duty is established. For example, a condition precedent in a will may be that the heir or beneficiary reaches a certain age. If the requirements for the condition precedent are not met, the parties are not obligated to perform.
Offsets / Setoffs
A setoff is a defendant’s counterclaim against plaintiff seeking to diminish plaintiff’s potential recovery amount. The defendant asserts an independent cause of action stating that plaintiff owes money or other valuables to the defendant, so the defendant owes less than the amount claimed by plaintiff. A party can offset payments on one contract with damages incurred from another contract with the same party. Compare this to recoupment, where the damages are limited to the same contract or job.
Recoupment is the defendant’s right to have the plaintiff’s award of damages reduced due to plaintiff’s breach of contract. Bear in mind that recoupment is distinguished from setoff. The reduction of damages for recoupment is based on the same transaction, whereas reduction of damages for setoff is based on a separate transaction.
From the Latin “what one has earned,” Quantum Meruit allows a defendant to be awarded a reasonable sum of money (usually fair market value) when there is not an expressly agreed upon monetary amount in a contract because it has been modified by implied agreement of the parties.
Parol Evidence Rule
The Parol Evidence Rule prevents parties from introducing evidence that supplements a fully integrated agreement, ensuring a contract was intended to be a full agreement between parties at the time it was entered into. It bars plaintiffs from presenting new evidence to change the agreement. However, the Parol Evidence Rule only bars evidence that contradicts, varies, or modifies the written agreement, not evidence that discloses or clarifies an ambiguity.
Usury occurs in an agreement when a plaintiff charges a higher interest rate on a loan than is permitted by law.
No Damage to Plaintiff
If plaintiff did not suffer damages, even if the allegations of breach of contract against the defendant are true, this could be a valid affirmative defense.
Lack of Standing
Standing is the ability to demonstrate that you were sufficiently harmed to bring the suit to court. In Federal cases, there is a three-part test to determine standing:
- Injury in Fact – plaintiff must have suffered a concrete, particularized harm that is actual and imminent, not hypothetical
- Causation – plaintiff must show that the injury is traceable to the defendant’s conduct
- Redressability – plaintiff must show there is a remedy that is not speculative but actually likely
The unclean hands doctrine also known as the “dirty hands” doctrine, occurs when the party that is being accused of breach alleges that the other party also committed a breach. Both parties are in the wrong (or have “unclean hands”) so neither should be given relief.
A Force Majeure, otherwise known as an “Act of God,” is an unforeseeable circumstance that allows certain kinds of contracts to be terminated.
No Deficiency Judgment
A deficiency is the difference between total debt and sale price. For example, if you have an outstanding home loan for $700,000 but the home sells for $600,000 at a foreclosure sale, you have a $100,000 deficiency. In most circumstances, California does not require that you pay the deficiency judgment to the foreclosing bank. Because California banks are limited in their ability to receive deficiency judgment, ensuring that your deficiency judgment follows all applicable laws and regulations is of utmost importance.
Improper Notice of Breach
If certain conditions or prerequisites of a contract are not met by the promisor (the party making the promise), this may constitute a defense to breach of contract for the promisee (the party to whom the promise is made). For example, a contract may require a particular form of notice delivered in a particular manner to a particular person as a prerequisite to filing suit.
Contact an Experienced Breach of Contract Affirmative Defense Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, & Silicon Valley
If you need help addressing affirmative defenses in your breach of contract lawsuit, the experienced business attorneys at Talkov Law are here to help. Contact us online for call us at (844) 4-TALKOV (825568) for a free consultation today.