Contract Defenses FAQ

California recognizes several categories of contract defenses that can render a contract voidable or unenforceable. These include defenses based on defective formation (lack of mutual assent, lack of consideration, lack of capacity), defenses based on defective consent (fraud, misrepresentation, duress, menace, undue influence, mistake), defenses based on public policy (illegality, unconscionability, contracts against public policy), and defenses based on statute (Statute of Frauds, statutes of limitation).

Additionally, impossibility, impracticability, and frustration of purpose may excuse performance under certain circumstances. Some defenses render a contract void from the beginning (such as illegality), while others make it voidable at the election of the injured party (such as fraud or duress). Still others make contracts unenforceable despite being otherwise valid (such as Statute of Frauds violations).

The availability and effect of each defense depends on the specific facts, the type of contract involved, and whether the defense goes to formation of the contract or to excusing performance of an otherwise valid contract. Understanding these defenses is critical for both asserting and defending against claims of breach of contract.

Under California Civil Code Section 1572, actual fraud consists of any of the following acts committed by a party to the contract with intent to deceive: (1) the suggestion as a fact of that which is not true, by one who does not believe it to be true; (2) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; (3) the suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or (4) a promise made without any intention of performing it.

To prove fraud and obtain rescission or damages, a plaintiff must demonstrate by clear and convincing evidence: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. California also recognizes constructive fraud under Section 1573, which does not require intent to deceive but involves breach of a duty owed by one party to another, such as in fiduciary relationships.

Fraud in the inducement makes a contract voidable, while fraud in the factum (fraud as to the nature of the document itself) may render a contract void. The defrauded party may elect to either rescind the contract under Sections 1689-1693 or affirm it and sue for damages. Section 1692 specifically provides that a defrauded party may rescind and still recover damages for the fraud.

Duress and undue influence are related but distinct defenses based on improper pressure that destroys voluntary consent. California Civil Code Section 1569 defines duress as unlawful confinement of a person, or of their property, or unlawful detention of property, or threats of such confinement or detention, used to compel consent to a contract. Section 1570 adds that menace (threat of duress, unlawful injury to person, character, or property, or any injury to another) also vitiates consent.

Modern California law recognizes economic duress, which exists when one party makes wrongful threats that compel the other party to enter into a contract against their will, leaving no reasonable alternative. To establish economic duress, a plaintiff must show: (1) the party making the threat engaged in a wrongful act, such as threatening to breach a contract; (2) the threat was sufficient to overcome the will of a person of ordinary firmness; and (3) the party was actually induced to enter the contract by the threat and had no reasonable alternative.

Undue influence, defined in Section 1575, involves using a position of trust or authority to overcome another's free will. It consists of: (1) taking unfair advantage of another's weakness of mind; or (2) taking a grossly oppressive and unfair advantage of another's necessities or distress. Undue influence typically involves a confidential or fiduciary relationship where one party has superior knowledge, authority, or influence. Unlike duress, which involves overt coercion, undue influence often involves subtle pressure, persuasion, or manipulation of someone in a vulnerable position. Both duress and undue influence make contracts voidable under Section 1689.

California recognizes both mutual mistake and unilateral mistake as potential defenses to contract enforcement. Under Civil Code Section 1577, mutual mistake occurs when both parties labor under the same misapprehension about a basic assumption on which the contract was made, and the mistake materially affects the agreed-upon exchange of performances. When mutual mistake exists regarding a material fact, either party may rescind the contract under Section 1689.

For mutual mistake to justify rescission, the mistake must concern a basic assumption of the contract—a fact that goes to the heart of the agreement. The mistake must exist at the time the contract was made, not arise afterward. Examples include mistakes about the existence of the subject matter, its identity, its essential characteristics, or the feasibility of performance. Mistakes about market value or future events generally do not qualify, as these involve risk allocation that parties assume when contracting.

Unilateral mistake—where only one party is mistaken—generally does not justify rescission unless the other party knew or had reason to know of the mistake, or the mistake was caused by the other party's fault. However, California courts may grant relief for unilateral mistake when the mistake is material, enforcement would be unconscionable, and rescission would not substantially harm the other party. Section 1578 addresses the distinction between mistake of fact and mistake of law, though modern California law has substantially eroded this distinction, recognizing that mistakes of law can also justify rescission when they concern material aspects of the transaction.

Unconscionability is an equitable defense that allows courts to refuse enforcement of contracts or contract terms that are fundamentally unfair. California Civil Code Section 1670.5 authorizes courts to find a contract or clause unconscionable as a matter of law and refuse to enforce it, sever unconscionable provisions, or limit their application to avoid unconscionable results. This section codifies the equitable doctrine of unconscionability and applies to all contracts, though it is invoked most frequently in consumer contracts and contracts of adhesion.

California courts apply a two-part test requiring both procedural and substantive unconscionability, though they need not be present in equal amounts. A sliding scale applies—the more substantively oppressive a term, the less procedural unconscionability is required, and vice versa. Procedural unconscionability concerns the bargaining process and circumstances of contract formation. It includes oppression arising from unequal bargaining power that provides no meaningful choice, and surprise resulting from hiding terms in fine print or using deliberately obscure language that prevents the weaker party from understanding their rights and obligations.

Substantive unconscionability concerns the actual terms of the contract and whether they are overly harsh, one-sided, or commercially unreasonable. Courts examine whether terms unfairly favor one party, reallocate risks in an objectively unreasonable manner, or are so extreme as to shock the conscience. Common examples include grossly excessive prices, unfair penalty clauses, provisions that unfairly limit remedies or liability, mandatory arbitration clauses that prevent vindication of statutory rights, and terms that create a significant imbalance in rights and obligations. The unconscionability determination is made as of the time of contract formation, not based on later developments.

A contract is illegal and unenforceable if its object or consideration is forbidden by law or contrary to public policy. Under California Civil Code Section 1598, if any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void. This harsh rule reflects the principle that courts will not lend their assistance to illegal transactions. Section 1667 provides that the object of a contract must be lawful when made, and Section 1608 states that if any part of a single consideration is unlawful, the promise is entirely void.

Illegality includes contracts to commit crimes or torts, contracts that violate regulatory statutes (such as contracts by unlicensed contractors under Business and Professions Code Section 7031), and contracts that contravene public policy even if not expressly forbidden by statute. Business and Professions Code Section 16600 makes contracts in restraint of trade void with narrow exceptions. When a licensing statute is designed to protect the public rather than merely raise revenue, contracts made by unlicensed persons are typically void and unenforceable.

Importantly, courts may refuse to enforce illegal contracts even if neither party raises illegality as a defense—the court can raise it sua sponte. When a contract is illegal, the general rule is in pari delicto—courts leave the parties where they find them and will not aid either party in obtaining restitution or damages. However, exceptions exist: when the parties are not equally at fault, when one party was within a class protected by the violated statute, when public policy favors enforcement despite the illegality, or when refusing restitution would unjustly enrich the defendant. Section 1599 provides that where a contract has both legal and illegal parts, courts may sever the illegal portion if it is not central to the parties' purpose.

The Statute of Frauds, codified in California Civil Code Section 1624, requires certain categories of contracts to be evidenced by a writing signed by the party to be charged (the party against whom enforcement is sought), or such contracts are unenforceable. The statute serves to prevent fraud and perjury by requiring reliable evidence of important transactions. Section 1624 lists contracts within the Statute of Frauds including: agreements that by their terms cannot be performed within one year from their making, special promises to answer for the debt or default of another, agreements made in consideration of marriage (other than mutual promises to marry), agreements for the sale of real property or of an interest therein, agreements for leasing real property for more than one year, and agreements for the sale of goods over $500 under Commercial Code Section 2201.

The writing required by the Statute of Frauds need not be formal or contain all contractual terms, but it must reasonably identify the subject matter, indicate that an agreement was made, and state with reasonable certainty the essential terms. The writing can consist of multiple documents, and in some cases, emails, text messages, or other electronic communications may satisfy the requirement under California's Uniform Electronic Transactions Act. The signature requirement can be satisfied by any mark or symbol executed or adopted with intent to authenticate the writing.

Important exceptions exist that allow enforcement despite lack of a writing. Part performance of contracts for sale or lease of real property (typically involving possession, payment, and improvements) can take the contract out of the Statute. Promissory estoppel may prevent a party from invoking the Statute of Frauds when the other party reasonably relied to their detriment on an oral promise. Under Commercial Code Section 2201, merchant confirmations, admissions in court, specially manufactured goods, and partial performance can satisfy or except sale of goods contracts from the writing requirement.

Impossibility of performance, addressed in California Civil Code Section 1511, excuses a party's duty to perform when performance has become objectively impossible due to circumstances beyond their control and without their fault. Section 1511 specifically provides that an obligation to do an act is extinguished when performance is prevented or becomes impossible by operation of law or an irresistible, superhuman cause, or by the act of a public enemy. True impossibility requires that performance cannot be accomplished by anyone, not merely that it has become difficult or economically burdensome for the particular party obligated to perform.

Examples of circumstances giving rise to impossibility include destruction of the specific subject matter necessary for performance (such as when a building to be sold is destroyed by fire), death or incapacity of a party in a personal service contract that required the specific party's performance, and subsequent illegality when a change in law makes performance illegal. For impossibility to excuse performance, the impossible event must not have been foreseeable at the time of contracting and the party seeking excuse must not have contributed to or assumed the risk of the impossibility.

The impossibility must arise after contract formation. If performance was impossible when the contract was made, the contract is void from the beginning for having an impossible object under Section 1597. The doctrine does not apply to financial inability to perform or mere economic hardship, which are considered foreseeable business risks that parties assume when contracting. When impossibility discharges a duty to perform, each party is excused from future performance, though restitution may be required for benefits already received under the doctrine of unjust enrichment.

Commercial impracticability is a more flexible doctrine than strict impossibility, recognized in California Commercial Code Section 2615 for contracts involving the sale of goods. While impossibility requires that performance cannot be done, impracticability excuses performance when an unforeseen event makes performance commercially impracticable—not literally impossible, but so difficult or expensive that it would be fundamentally different from what was originally undertaken and would impose extreme and unreasonable difficulty, expense, injury, or loss.

To establish impracticability under Section 2615, a seller must show: (1) performance has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made; (2) the party claiming excuse did not expressly or impliedly agree to perform despite such contingencies; and (3) the impracticable event was not caused by the fault of the party seeking excuse. The doctrine applies to unforeseen supervening circumstances such as severe shortages of raw materials, embargoes, local crop failures, or shutdowns of major sources of supply.

California courts apply this defense narrowly. Mere increase in cost, even substantial increase, is generally insufficient to establish impracticability unless it is so severe and unreasonable as to alter the essential nature of the performance. The fact that performance has become economically burdensome or less profitable is not enough. Courts examine whether the increased cost was unforeseeable and whether it was so extreme as to make performance a fundamentally different thing from what was bargained for. Some courts have required cost increases of several hundred percent. The doctrine reflects recognition that literal impossibility is too restrictive a standard, but it remains a high bar requiring truly extraordinary and unforeseeable circumstances that fundamentally alter the nature of performance.

Frustration of purpose is a defense that excuses contractual performance when an unforeseen event destroys the underlying purpose of the contract, even though performance remains technically possible. Unlike impossibility (where performance cannot be done) or impracticability (where performance is possible but unreasonably difficult), frustration applies when performance is entirely possible but the fundamental reason for entering the contract has been destroyed, making the transaction virtually worthless to one party.

California courts recognize frustration of purpose as a distinct excuse for non-performance. To establish this defense, a party must prove: (1) the contract was made with reference to a specific purpose that was the foundation of the contract and known to both parties; (2) a supervening event occurred that was not reasonably foreseeable at the time of contract formation; (3) that event substantially frustrated the identified purpose, making the transaction virtually worthless; and (4) the frustrated party did not assume the risk of the frustrating event occurring, either expressly or by allocation of risk inherent in the contract.

The classic example comes from the English coronation cases, where rooms were rented to view a coronation parade that was cancelled due to the king's illness. Performance (providing the rooms) was possible, but the specific purpose (viewing the parade) was destroyed. In California, frustration has been applied when government action prevented the contemplated use of leased property or when regulatory changes destroyed the value of a business opportunity. The defense requires that the parties' principal purpose in making the contract be substantially frustrated without their fault. Partial frustration, disappointment in business expectations, or mere economic disadvantage is insufficient—the frustration must be so severe that the transaction makes no sense and is virtually worthless.

The remedies available when a contract defense succeeds depend on whether the contract is classified as void, voidable, or unenforceable. For void contracts (such as those with illegal objects or entered into by persons entirely lacking capacity), the contract is treated as never having existed. Under the in pari delicto doctrine, courts generally leave the parties where they find them and will not assist either party in recovering benefits conferred. However, restitution may be available to prevent unjust enrichment when the parties are not equally at fault, when one party was within a class protected by the violated statute, or when equity demands return of benefits.

For voidable contracts (such as those induced by fraud, duress, undue influence, or mistake), the party with the power to avoid may elect either to rescind the contract or to affirm it and seek damages. Under California Civil Code Sections 1689-1691, rescission requires prompt action and restoration of benefits received or an offer to restore them. Section 1692 specifically allows a party who rescinds based on fraud to also recover damages for the fraud. The injured party's election between rescission and affirmance is binding once made with knowledge of the facts.

For contracts unenforceable under the Statute of Frauds, the contract cannot be enforced through an action for specific performance or damages for breach, but equitable doctrines may provide relief. Promissory estoppel may prevent a party from invoking the Statute of Frauds when the other party detrimentally relied on an oral promise. The part performance doctrine may allow enforcement of oral real estate contracts when the plaintiff can show possession, payment, and improvements. Restitution for the value of benefits conferred (quantum meruit) may be available to prevent unjust enrichment even when the contract itself is unenforceable. Under Civil Code Section 1670.5, courts finding unconscionability have flexibility to refuse enforcement entirely, sever unconscionable clauses, or limit their application. Finally, successful assertion of impossibility, impracticability, or frustration discharges the duty of future performance and may require restitution of benefits already received to restore parties to their pre-contract positions.