In these times of economic uncertainty, many organizations are finding themselves unable to fulfill their contracts. Yet if you have been accused of a contract breach, you may be worried about getting sued. What defenses might you have?
First, it’s important to be sure that the contract is actually valid and enforceable. For example, to be valid, a contract must be a bargained-for exchange of promises, with each party receiving value in return for the promise.
The terms must be clear enough for both parties and a court to understand. The parties have to have the legal capacity to contract, and their decision must have been free from undue influence, duress or misrepresentation. The contract must comport with the law and, to some extent, public policy and cannot be unconscionable.
Let’s assume for the moment, however, that you legally entered into a valid contract with someone and are now having trouble fulfilling your side of the bargain. Here are some practical defenses you can bring up in the event you are sued:
The other side also breached the contract: For example, they may have agreed to a change in the contract delivery date but now won’t honor that agreement. Or, they may have accepted some payments but refused others.
The other side failed to mitigate their damages: Each side has a legal duty to avoid making the situation worse than it has to be. Has the other side driven up the damages by refusing to take reasonable steps to limit them? Have they refused a reasonable settlement offer?
Substantial compliance: You largely fulfilled the contract except for a small part. Some form of restitution may need to be made.
No damage to the plaintiff: Even if you did breach the contract, the other side suffered no damages.
You were prevented from performing the contract: Someone or something made it impossible to fulfill the contract. (Often referred to as “force majeure.”) This is an unusual defense that is becoming a great deal more common now as the government shut down parts of the economy entirely and made it impossible for some contracts to be fulfilled. This defense depends on exactly what your contract says about what should happen if circumstances beyond the parties’ control prevents the contract from being fulfilled. If this defense applies, the contract is generally canceled altogether.
These are just a few examples of situations where you might have a defense to a breach of contract claim. Have your business law attorney review your contract and the circumstances of the breach. This may grant relief from the contract’s terms, in whole or in part.
Breach of contract can be handled out of court
It’s also important to realize that an alleged breach of contract can be managed. You may be able to negotiate a solution, such as an extension to the time allowed or a reduction in the price.
If you are unable to negotiate a solution, you may attempt to resolve the problem through mediation or arbitration before you must defend yourself in court.
If you are concerned about being unable to fulfill your contracts, don’t panic. Discuss your concerns with an experienced business law attorney.