If you are a small business owner in Colorado, you know that a breach of contract claim is something to take seriously. A lawsuit against your business usually costs you time and money and disrupts your business goals and progress.
Although many contract claims are resolved through negotiation, it is still helpful to know some key defenses against a breach of contract claim. Asserting these defenses can provide you with leverage in negotiations, and if negotiations fail, you will have the defenses ready to present to a court or arbitrator.
Impossibility
This is a common defense in the business world. Unforeseen situations or conditions sometimes mean you can no longer perform your duties under the contract.
Examples of situations that make a contract impossible to perform include injury, natural disasters or weather. Perhaps the contract required you to ship goods out to arrive somewhere by a certain date, but the day before you ship them out a tornado destroys your building and everything in it, including the goods.
Even if you could secure another set of the goods, it is now impossible for you to perform under the contract according to the exact terms since the goods will likely not arrive on time.
Impracticality
The impracticality defense means that although technically you could perform under the contract, doing so would be so impractical that it would no longer benefit you and/or the other party.
For example, if you contract to build a home for someone and the price of materials goes up so high that you will no longer profit under the contract, you could assert impracticality as a defense to not building the home.
Bad faith and unclean hands
Bad faith means that the other party was not honest and did not act fairly with you when making the contract. You might now find yourself stuck in a contract that does not benefit you because you were led to believe the terms meant something that they did not.
Unclean hands is a similar defense. Unclean hands means that both parties to a contract breached the contract. Typically, neither party is held liable if both had unclean hands.
Estoppel and waiver
This defense is used when the other party allows you to breach the contract but later tries to sue you over it. By allowing you to breach the contract, you can argue that they waived their right to sue for breach and they no longer have the right (or are “estopped’) to enforce their right to sue.
An example of waiver is if you pay rent to a commercial landlord and your business is struggling. If you tell your landlord about your troubles and they agree to let you pay rent late for the next three months, they cannot then sue you for the three months of late payments.
If you are going use waiver and estoppel as a defense, it is best to get any agreement to change the contract terms in writing. In the above example, a waiver defense is more likely to be successful if you can produce a writing signed by your landlord agreeing that you can pay rent late for the three months.