So you got sued for breach of contract. There’s no need to panic. Your legal rights may include a number of valid defenses to the claim, some of which may not be readily obvious. Knowing when to assert these defenses can make the difference between losing a large monetary judgment and getting the case dismissed at the outset. Before you write the plaintiff a check in whatever amount is being demanded in the lawsuit, consider whether one or more of these contract defenses may apply to your situation. There may be perfectly valid reasons why you don’t actually owe that money.
Void or Voidable Contract
A void contract is considered a nullity and has no legal effect. A contract made in violation of a Virginia statute, for example, would be illegal and therefore void. For example, contracts for the payment of interest on a loan will be deemed void if the interest rate is unlawfully high. (See Va. Code § 6.2-303). A plaintiff who brings an action based on a void contract is not entitled to recover damages, even if that contract was breached. A void contract can’t be validated or ratified. A voidable contract is one that starts off as a valid, legal contract, but which permits one or both of the parties to disaffirm or otherwise avoid the obligations created by the contract.
No Meeting of the Minds
All enforceable contracts require mutuality of assent–a “meeting of the minds”–regarding the terms of the agreement. Both parties must agree to all terms. Their minds must have “met” on every material term of the agreement or there will not be a valid contract. (See Phillips v. Mazyck, 273 Va. 630, 636 (2007)). If one party knows or should know that the other party is making a mistake with respect to the alleged agreement, then there is no meeting of the minds and therefore no contract.
Indefinite or Uncertain Terms
A contract won’t be enforced if its obligations are not reasonably certain and can’t be determined in light of surrounding circumstances. An agreement for service must be certain and definite as to the nature and extent of service to be performed, the place where and the person to whom it is to be rendered, and the compensation to be paid, or it will not be enforced. (See Reid v. Boyle, 259 Va. 356, 370 (2000) (citing Mullins v. Mingo Lime & Lumber Co., 176 Va. 44, 50 (1940))).
Lack of Consideration
Enforceable contracts require that something be given in exchange for a promise from the other party. Consideration refers to “the price bargained for and paid for a promise.” (See Smith v. Mountjoy, 280 Va. 46, 53 (2010)). It may come in the form of “a benefit to the party promising or a detriment to the party to whom the promise is made.” (GSHH–Richmond, Inc. v. Imperial Assocs., 253 Va. 98, 101 (1997)). If an apparent contract lacks consideration, it’s essentially a gift. (Gifts are gratuitous promises, not requiring that anything be given in exchange.) Unlike contracts, gifts cannot be enforced in court.
If the contract at issue doesn’t really obligate one of the parties to do anything, the contract will fail for lack of mutuality. These contracts are usually worded in such a way as to give the appearance of an obligation but when interpreted strictly created no enforceable obligation. If you told the plaintiff you “might” sell him your car if he gave you $100, he won’t be successful in suing you for that car because you never really agreed to do anything. Because an illusory promise doesn’t really require the promisor to do anything, consideration is lacking.
If you were tricked into signing a contract through a misrepresentation made by the plaintiff, the contract may be voidable. Fraud in the inducement requires that false representations of a material fact were communicated to the defrauded party during the negotiations leading up to the agreement, that the false representations were made knowingly and intentionally, and that the defrauded party reasonably relied on the false representations in agreeing to enter into the contract.
Lack of Capacity to Contract
Some people lack the legal capacity to enter into binding agreements. What’s required is the mental capacity to understand the nature of the transaction and agree to its provisions. (See Bailey v. Bailey, 54 Va. App. 209, 215 (2009)). So, for example, if you were drunk when you agreed to enter into a contract, you may be able to get out of it by showing that you lacked the capacity to incur contractual duties at the time you signed the agreement.
Duress / Coercion
Duress is the application of undue pressure in a contractual bargaining process through the use of improper threats or physical force. In other words, if you were forced into signing an agreement against your will, you won’t need to honor its terms. Courts generally look for three elements: (1) one side involuntarily accepted the terms of another; (2) circumstances permitted no other alternative; and (3) the circumstances were the result of coercive acts of the opposite party. “To constitute duress, it is sufficient if the will be constrained by the unlawful presentation of a choice between comparative evils; as, inconvenience and loss by the detention of property, loss of property altogether, or compliance with an unconscionable demand.” (See Vick v. Siegel, 191 Va. 731, 735 (1951)).
Statute of Frauds
Certain contracts must be in writing to be enforceable. Contracts for the sale of real estate, for example, must be evidenced by a signed writing to be enforceable. (See Va. Code § 11-2). If you told your neighbor you would buy his house for $500,000 but didn’t put anything in writing, you can probably get out of the deal.
Statute of Limitations
Maybe the plaintiff filed his lawsuit too late. Statutes of limitation establish deadlines for filing lawsuits, depending on the nature of the claim. Suits on oral contracts must be brought (if at all) within three years from the time the cause of action accrues; suits on written contracts must be brought within five years. (See Va. Code § 8.01-246).
Unconscionable Contract of Adhesion
Courts may void a contract provision that is unconscionable. An unconscionable contract is “one that no man in his senses and not under a delusion would make, on the one hand, and as no fair man would accept, on the other.” (Smyth Bros.-McCleary-McClellan v. Beresford, 128 Va. 137, 170 (1920)). The inequality must be so severe as to “shock the conscience” of the court. Adhesion contracts are often found to be unconscionable. Adhesion contracts are boilerplate agreements prepared by a large and powerful party (like a phone company or ISP) and presented on a take-it-or-leave-it basis to another, much weaker party (e.g., the consumer).
Lack of Standing
Standing refers to the idea that the person filing the lawsuit must have a legitimate interest in the claim being pursued. In a suit for breach of contract, an outside party having nothing to do with the agreement and whose interests aren’t affected by its performance generally will not have the right to sue for its breach. Even if a person is in a position to benefit from the performance of the contract, if the contracting parties did not actually agree to confer a benefit on that person, the individual will lack standing to sue for breach. (See Valley Landscape Co. v. Rolland, 218 Va. 257, 260 (1977)).
Failure to Satisfy Condition Precedent
If a contract provides for the performance of special conditions precedent before a party is entitled to payment, the conditions must be performed unless the other party prevents or waives their performance. (See Winn v. Aleda Const. Co., 227 Va. 304, 307 (1984)). A plaintiff will not be entitled to relief for breach of contract if a condition precedent has not been satisfied. The parties are not obligated to perform the agreement unless and until the condition occurs.
Discharge of Duty to Perform
Maybe you had a duty at some point in time to perform a contractual obligation, but that duty has been discharged by some event. There are a variety of situations in which this can arise. A contract might include a “condition subsequent” that allows one party to escape the contract if an event occurs that makes the contract unappealing. Or maybe you already tendered performance but the other party refused to accept it. Under circumstances like these, your duty to perform the contract may be deemed discharged.
Prior Breach by Plaintiff
Generally speaking, the first party to commit a material breach of an agreement can neither enforce that agreement nor maintain an action for its breach. This rule does not apply if the breach did not go to the “root of the contract” but only to a minor part of the consideration. A material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract. (See Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142, 154 (2001)).
Plaintiff Induced Defendant’s Breach
Maybe you, the defendant, breached the contract first, but only because the plaintiff did something that caused you to breach. The plaintiff should not be permitted to benefit from his own misconduct by suing you for a breach he caused himself.
Whatever you do, though, don’t just copy and paste the above list into your answer to the complaint. Only assert defenses that actually apply to your particular situation. Raising affirmative defenses not “well grounded in fact” can lead to sanctions. (See Ford Motor Company v. Benitez, 273 Va. 242 (2007)).