Defending Your Company in a Breach of Contract Lawsuit

It’s common for businesses in Florida to be a party to one or more contracts. Thankfully, the terms of most of these contracts are carried out without problem. But sometimes, issues arise, and a business gets accused of breaching the contract. Most of these accusations don’t result in litigation, as the parties to the contract are able to resolve their differences out of court. However, if you or your business has been accused of not meeting contractual obligations, you might find yourself in court. If that happens, there are several defenses you could raise in a breach of contract civil suit.

No Valid or Enforceable Contract

There can’t be a breach of contract if there’s no enforceable contract. To have a valid contract, three elements must exist:

• An offer;
• Acceptance of the offer; and
• Consideration.

If any of these three elements is missing, there’s no valid contract. But there are many other ways to show that no enforceable contract exists. Some of the more common ways include:

• Duress: A party is forced or coerced to enter into the contract.
• Fraud: A party lies about an important term in the contract, and had the truth been told, the other party never would have agreed to enter into the contract.
• Statute of frauds: Certain contracts must be in writing and accompanied by a signature to be enforceable.
• Illegality: Contracts can’t be enforced if they break the law or require one or more parties to the contract to break the law.
• Mistake: A contract won’t be enforced if one or both parties to the contract reasonably misunderstood what they were agreeing to.
• Unconscionability: The terms of the contract are extremely unfair.
• Lack of capacity: A contract can’t be enforced against someone if they lacked the capacity to enter into a contract.

You Didn’t Breach (or it Can’t Be Proved)

This is where a lot of the arguments and legal fighting occur in a breach of contract case. The plaintiff claims the defendant didn’t do what they were supposed to under the contract while the defendant denies the allegation. For example, the plaintiff claims the defendant breached the contract when it failed to deliver the goods paid for by the plaintiff. The defendant says they shipped the goods using the method and terms as outlined by the contract, and therefore, they didn’t fail to deliver the goods. The key issue in this hypothetical revolves around what the defendant’s obligations were to “deliver the goods.” In other words, did the defendant meet this obligation when they shipped the goods? Or could the defendant only meet this obligation when the goods were physically delivered to the plaintiff? If the contract’s terms state that the goods are to be deemed “delivered” as soon as the defendant drops them off with the shipper, then the defendant will likely win the case. The defendant could also win this case if the plaintiff can’t prove that the breach occurred. Using the above example, imagine the defendant produces a receipt to show that it shipped the goods as required. But the plaintiff claims the receipt is a fake and the defendant never shipped anything. Even if what the plaintiff claims is true, they will likely lose their case if they can’t sufficiently prove that the defendant failed to ship the goods as promised.

The Other Side Breached First

If the plaintiff breaches the contract before the defendant does, then the plaintiff will likely lose their breach of contract case. Let’s say we have a contract that requires the plaintiff to pay $1,000 to the defendant, and then after payment is received, the defendant must have a widget delivered to the plaintiff’s business address. The contract also specifies that the risk of shipping loss is on the defendant. The plaintiff never received the widget they ordered, so they sued the defendant for breach of contract. The defendant admits it never shipped the widget, but claims that this was because the defendant never received the $1,000 payment. In this example, the defendant is arguing, among other things, that it can’t be liable for not delivering the widget because the plaintiff breached the contract first, i.e., the plaintiff didn’t pay the defendant the $1,000.

Legal Excuses for Nonperformance

Life is unpredictable, and the unexpected sometimes happens. Contract law has developed over time to reflect this reality by accepting several legal theories that allow a party to not fulfill certain contractual requirements if certain unexpected events occur. Some of these legal concepts are:

• Force majeure: Parties to a contract are relieved of their contractual obligations in cases of extraordinary events, such as the outbreak of war, riot, strike, or “acts of God.”
• Impossibility: A defendant can’t be liable for breach of contract when it’s impossible for them to deliver an item that no longer exists (and the defendant isn’t the cause of this impossibility).
• Impracticability: A defendant can still technically comply with the contract, but it would be unrealistic to expect them to do so because it would require unreasonable expense or effort.
• Frustration of purpose: An event beyond the control of either party negates the entire reason for the contract. For example, the parents of a bride-to-be ask to be relieved of their obligation to pay for a wedding venue when their future son-in-law dies suddenly in a tragic accident.

The Contract Was Modified, Waived, or “Changed in Practice”

When parties enter into a contract, they might have certain expectations about how each party should perform under the contract. But over time, these practices change, and both sides often accept these changes by not complaining when the changes occur. Then suddenly, one party claims one of the changes goes against the contract and accuses the other of breaching the contract. Let’s use another example to better demonstrate this idea. Acme Inc. sells anvils to Wile E. Corp. at a cost of $100 an anvil. Under the contract, Wiley E. Corp. must pay this $100 within 20 days after delivery of the anvil. For years, Wile E. Corp. orders one anvil a month from Acme Inc. and pays within 20 days of delivery of the anvil. Then one day, Wile E. Corp. starts making payments outside the 20-day window. At first, payment is made on day 21 or 22, but after a few months, Wile E. Corp. is sending payment on day 40 or 45. Despite these delayed payments, Acme Inc. says nothing and continues delivering anvils as ordered by Wile E. Corp. This continues for several more years. Then one day, Acme Inc. claims Wile E. Corp. is in breach of contract because Wile E. Corp. isn’t making payments on time. In its defense Wile E. Corp. asserts waiver and modification. Within the contract law context, waiver is the voluntary and intentional relinquishment (or waiver) of a contractual right. Waivers can be explicit as well as implicit. Modification under contract law refers to the change of a contract’s terms upon the mutual agreement of the parties. Wile E. Corp. will argue that Acme Inc. implicitly waived its right to payment within 20 days when it went multiple years by accepting “late” payments and continuing to do business with Wile E. Corp. without bringing up any concerns about late payments. Wile E. Corp. will also argue that both sides mutually agreed to modify the payment terms to the contract when they continued doing business with each other despite Wile E. Corp. continuing to make payments outside the 20-day payment window. If Wile E. Corp. successfully argues waiver or modification, they will have won their case with a “changed in practice” defense.

The Damages Claim Doesn’t Hold Up

To successfully sue for breach of contract, there must be damages. If a plaintiff can’t prove to the court that they suffered some sort of loss because of the breach, the plaintiff can’t win the case. How the plaintiff proves their damages will depend on the type of damages claimed. There are different types of potential damages in a breach of contract case, the two most prominent being direct damages and consequential damages. Direct damages are damages directly suffered by the plaintiff due to the defendant’s breach of contract. Consequential damages are damages that are a consequence of the breach, yet not directly related to the breach. Here’s yet another example to explain these concepts. Let’s say you want to win a sailboat race (with a grand prize of $10 million) and contract with a marine engineering firm to design and build you a sailboat. They ask for $1 million for their services with a $100,000 initial deposit. However, they never design or build you a sailboat, so you sue the firm claiming $1 million in direct damages and $10 million in consequential damages. You argue your direct damages are $1 million because that’s what the defendant charged for their services. You claim $10 million in consequential damages because without the sailboat, you couldn’t enter the race and therefore lose out on the $10 million grand prize. In its defense, the marine engineering firm argues it only owes you $100,000, which was the down payment you made for the sailboat’s design and construction. In other words, you didn’t suffer $1 million in direct damages, only $100,000. As for consequential damages, the marine engineering firm contends that you aren’t entitled to anything because the claimed consequential damages are too indefinite or speculative. After all, even with the best sailboat in the world, there’s no guarantee you’d win any sailboat race. In this example, you’re suing for a total of $11 million, but can only recover $100,000, or less than 10% of your claimed amount. This is because you are only able to prove you suffered $100,000 in losses.

Important Steps Florida Businesses Should Take When Sued

If you’ve just learned that your business is being sued for breach of contract, there are a few important steps you need to take. First, you want to carefully read the complaint (the court document that starts the lawsuit) and the contract the plaintiff claims you breached. Look for any inconsistencies or areas of disagreement between the two documents. Second, think about what evidence you’ll need to defend your business in the lawsuit. This includes people who might need to testify, as well as documents or other pieces of evidence you might rely on to support your legal defenses. Third, consult with an experienced business litigation attorney. You’ll want their legal opinion on the merits of the case and what you need to do to mount the best legal defense possible.

How Jimerson Birr Can Help You During a Breach of Contract Claim

This article has presented plenty of information on how to defend against a breach of contract claim. Yet this just scratches the surface of what it takes to litigate contract disputes in Florida courts. Business litigation is often complex, with many important facts and relevant statutes and cases that can make or break the case. Then there are the procedural requirements for presenting certain legal arguments at specific stages of the lawsuit. As daunting as this all sounds, Jimerson Birr can help. We have a team of business law attorneys with years of experience defending against breach of contract claims. Contact us to schedule a consultation as soon as you learn about the possibility of a lawsuit against your business.