Contract Defenses FAQ

California imposes different statutes of limitations for breach of contract claims depending on whether the contract was written or oral:

• Written contracts: 4 years under California Code of Civil Procedure Section 337
• Oral contracts: 2 years under CCP Section 339
• Sale of goods (UCC): 4 years under California Commercial Code Section 2725

The statute begins to run when the breach occurs, not when the contract was formed or when the plaintiff discovers the breach, except in cases involving fraud or concealment where the discovery rule may apply. California courts have recognized that a continuing breach may extend the limitations period for ongoing violations.

It is critical to file suit before the applicable deadline expires, as courts will dismiss time-barred claims upon defendant's motion. Tolling provisions may extend the deadline in limited circumstances, such as when the defendant is absent from California or when the plaintiff is a minor or lacks mental capacity.

Impossibility of performance is a defense that excuses a party from performing contractual obligations when performance has become objectively impossible due to circumstances beyond their control. California Civil Code Section 1511 provides that performance is excused when it is prevented or delayed by operation of law, act of the obligee, or irresistible superhuman cause.

To successfully assert impossibility in California, the defendant must demonstrate:

• The impossibility was not reasonably foreseeable at the time of contracting
• The defendant did not assume the risk of the impossibility
• The defendant was not at fault in creating the impossible conditions
• The impossibility is objective (no one could perform) rather than merely subjective

California courts distinguish between true impossibility and mere impracticability or difficulty. Financial inability to perform is generally not a valid defense, nor is increased expense unless the increase is extreme and unreasonable. Common examples of accepted impossibility defenses include destruction of the specific subject matter, death or incapacity of a person essential to performance, and intervening illegality.

Duress is a defense that renders a contract voidable when one party's consent was obtained through wrongful threats or coercion. California Civil Code Section 1569 defines duress as the unlawful confinement of a person or their relative, or the unlawful detention of property. California courts have expanded the doctrine beyond physical threats to include economic duress.

To establish duress in California, the defendant must prove:

• They were subjected to a wrongful act or threat
• The threat overcame their free will
• The threat left them with no reasonable alternative but to agree

Economic duress requires showing that the threatening party made a wrongful demand, the threatened party had no reasonable alternative but to comply, and the circumstances were created by the threatening party's wrongful conduct. Merely difficult bargaining positions or hard negotiating tactics do not constitute duress.

The defense must be raised promptly; if the allegedly coerced party continues performing after the duress is removed, they may be deemed to have ratified the contract.

Mutual mistake is a defense available when both parties to a contract shared the same erroneous belief about a material fact existing at the time of contract formation. Under California Civil Code Section 1577, a mistake of fact is a mistake not caused by the neglect of a legal duty, consisting in an unconscious ignorance or forgetfulness of a fact past or present, material to the contract.

For mutual mistake to provide a defense in California:

• Both parties must have been mistaken about the same basic assumption
• The mistake must relate to a fact existing at the time of contracting (not future events)
• The mistake must be material and go to the essence of the agreement
• The party seeking relief must not bear the risk of the mistake

California courts distinguish between mistakes of fact and mistakes of judgment or prediction about future events, which do not provide grounds for relief. Similarly, mistakes about the law generally do not excuse performance, as parties are presumed to know the law. When mutual mistake is established, the contract may be rescinded under Civil Code Section 1689.

Unilateral mistake occurs when only one party to a contract is mistaken about a material fact. Unlike mutual mistake, unilateral mistake provides a more limited defense in California. Under California Civil Code Section 1578, a mistake by only one party may be grounds for relief when:

• The non-mistaken party knew or should have known of the mistake
• The non-mistaken party caused the mistake through misrepresentation or concealment
• Enforcement of the contract would be unconscionable given the circumstances

California courts apply strict requirements for unilateral mistake defenses because contract law generally holds parties to their agreements even when they make poor judgments. The mistake must be about an existing fact, not a prediction about future events or the value of the bargain. The mistaken party must not have been negligent in failing to discover the truth and must have acted promptly upon discovering the mistake.

Common applications include bid errors in construction contracts, where courts may grant relief if the error was mathematical and the other party knew or should have known the bid was too low to be realistic.

Unconscionability is a defense that allows California courts to refuse enforcement of contracts or contract terms that are so one-sided and unfair as to "shock the conscience." California Civil Code Section 1670.5 authorizes courts to refuse enforcement of unconscionable contracts or to limit their application to avoid unconscionable results.

California courts analyze both elements:

• Procedural unconscionability - Examines circumstances of contract formation: unequal bargaining power, hidden or unclear terms, lack of meaningful choice, oppression or surprise
• Substantive unconscionability - Examines actual terms for unfairness: terms that unreasonably favor one party, excessive penalties, one-sided risk allocation

California courts apply a sliding scale: the more procedural unconscionability present, the less substantive unconscionability is required, and vice versa. Both elements must be present to some degree. Unconscionability is determined as of the time the contract was made, not based on subsequent events.

This defense is commonly raised against arbitration clauses, limitation of liability provisions, and consumer contracts of adhesion.

Yes, fraud is a complete defense to breach of contract claims in California when the contract was induced by fraudulent misrepresentation. California Civil Code Sections 1571-1572 define fraud in contract formation and provide grounds for rescission.

To establish fraud as a defense, you must prove:

• The other party made a false representation of a material fact
• They knew the representation was false (or made it recklessly without knowledge)
• They intended to induce your reliance on the misrepresentation
• You actually and reasonably relied on the representation
• You suffered damage as a result

Fraud in the inducement makes the contract voidable at the option of the defrauded party, who may choose to rescind the contract and seek restitution or affirm the contract and sue for damages. California also recognizes concealment as a form of fraud when a party suppresses a material fact they had a duty to disclose.

The fraud defense must typically be asserted promptly upon discovery. Fraud claims are subject to heightened pleading requirements under California law, requiring specific facts rather than general allegations.

The unclean hands doctrine is an equitable defense that prevents a party from obtaining relief when they have acted inequitably or in bad faith regarding the subject matter of the dispute. Under California law, this maxim provides that "one who comes into equity must come with clean hands."

To successfully assert unclean hands, the defendant must show:

• The plaintiff engaged in unconscionable, unfair, or inequitable conduct
• The misconduct is directly related to the matter at issue in the litigation
• The misconduct injured or prejudiced the defendant

California courts require a direct relationship between the plaintiff's misconduct and the transaction at issue—unrelated wrongdoing is insufficient. The defense applies primarily to claims for equitable relief such as specific performance, injunction, or rescission, though courts sometimes consider it in actions for legal damages.

The conduct need not be illegal; unfair dealing or bad faith can suffice. However, minor improprieties or technical violations typically do not trigger the doctrine. The defendant must also have clean hands themselves; courts may refuse to apply the defense if the defendant's misconduct equals or exceeds the plaintiff's.

The Statute of Frauds is a defense that renders certain types of contracts unenforceable unless they are evidenced by a written memorandum signed by the party to be charged. California Civil Code Section 1624 specifies contracts that must be in writing:

• Agreements that cannot be performed within one year from making
• Promises to pay the debt of another (suretyship)
• Agreements made in consideration of marriage
• Contracts for the sale of real property or interests therein
• Leases of real property for more than one year
• Agreements authorizing agents to sell real estate
• Contracts for sale of goods over $500 (Commercial Code Section 2201)

To satisfy the Statute of Frauds, the writing must identify the parties, describe the subject matter, state the essential terms, and be signed by the party against whom enforcement is sought. However, California recognizes exceptions including part performance (especially for real estate), estoppel when one party has detrimentally relied on the oral agreement, and admission by the party to be charged.

Frustration of purpose is a defense that excuses contract performance when an unforeseen event substantially frustrates the principal purpose for which the contract was made. Under California law, this doctrine applies when:

• The frustrated purpose was a principal purpose of the contract known to both parties
• The frustration is substantial rather than merely partial
• The frustrating event was not reasonably foreseeable at the time of contracting
• The party seeking relief did not cause or assume the risk of the frustrating event

Unlike impossibility, which makes performance itself impossible, frustration of purpose occurs when performance remains possible but the value of performance to one party has been destroyed. California courts recognize this defense sparingly and require more than mere disappointment or reduced profitability.

The classic example involves event cancellations—if you rent a venue specifically to watch a parade and the parade is cancelled, the purpose is frustrated even though you could still use the venue. The COVID-19 pandemic generated significant litigation testing frustration of purpose defenses in California, with varying results depending on contract terms and circumstances.