Defenses to Breach of Contract

What Are Valid Defenses Against a Breach of Contract Claim?

The most common defenses to enforcement of a contract or liability for damages are:

• Enforcement of the contract would violate public policy.

Example: A contract to lease part of a liquor license will not be enforced because splitting a liquor license between two parties and two locations violates the public policy of the state. See Digesu v. Weingardt, 91 N.M. 441, 575 P.2d 950 (1978).

• Performance of the contract has become impossible or the purpose of the contract has become frustrated.

Example: Dan hires Tom to paint his house, but the house burns down before the contract can be performed.

• The contract is illegal.

Example: The contract is for commission of murder.

• The contract lacks consideration.

Example: Tom promises to give $20 to Dan, but Dan does not have to do or give anything in return.

• The contract was obtained by fraud.

Example: Blue Company refuses to sell to Red Company, so Red Company sends Pink Company to buy goods from Blue Company and turn them over to Red Company.

• The contract limits the amount of damages that can be recovered.

Example: The contract states that in the event of a minor breach, the damages will be $100 regardless of the actual loss.

• The contract contains a mutual mistake, stating something different from what either party intended.

Example: Both parties intended a delivery date of March 15, but the contract says April 15.

• The contract contains a unilateral mistake that was material to the agreement and the other party knew or should have known of the mistake.

Example: Maria paid Tom a lot of money for a painting signed “Picasso.” Tom knew that Maria thought Pablo Picasso painted it, when really Arnold Picasso was the painter, but Tom did not correct the misunderstanding.

• The parties have accepted the contract performance, or a substitution for the performance, as adequate. This is called accord and satisfaction.

Example: Tim owes Frank $100 on a contract debt. Frank agrees to accept a radio worth $50 in exchange for discharging the debt. When Frank changes his mind and sues for the additional $50.00, the Court will not enforce the original contract because Frank has accepted the radio as performance of the contract.

• One (or both) of the parties lacked capacity to make the contract.

Example: A party to the contract is 16 years old or is mentally incompetent.