“I am getting sued for breaking my contract. What can I do?”

The following is a discussion of some of the existing concepts that arise in contract matters that may provide a defense to a lawsuit alleging that a party has breached their contract.

Force Majeure. Force majeure
is a topic that lawyers learned about in their contracts class in law school, but never had to deal with … at least until now. Under force majeure,
a party may be exonerated for failing to comply with a contract due to circumstances beyond their control. It may be used to exonerate or delay performance and, because it is an equitable principle, can be used to offer other types of equitable relief. There is no reported Arizona case which applies force majeure concept in a contract action, other than to define the concept (see Russo v. Barger,
239 Ariz. 100, 102, 366 P.3d 577, 579 [App. 2016]).

Act of God. An “act of God” is another defense to a breach of contract claim. It is an event or occurrence, typically a natural cause or disaster, that could not have been anticipated and makes performance impossible. Examples are extreme weather conditions, but not just a strong wind, snow storm, or rainstorm.

Under Arizona law, an act of God defense requires complete exclusion of any human agency from the cause of the loss. A casualty is not an act of God if it results from, or is contributed to by, any conduct of the parties or any other “human agency” or could otherwise be prevented by the exercise of reasonable care.

Economic Duress. Another defense recognized in contract law is “economic duress,” sometimes referred to as “business compulsion.” Arizona courts have long held that contracts procured under duress are unenforceable. A charge of economic duress or business compulsion must be based on the acts or conduct of the opposite party and not merely on the necessities of the breaching party, or on his fear of what a third person might do. The mere fact that a person entered into a contract with reluctance, or as a result of the pressure of business circumstances, financial embarrassment, or economic necessity, does not of itself constitute business compulsion or economic duress invalidating the contract.

Duress exists if one party is induced to assent to a contract by a wrongful threat or act of the other party. Normally, duress does not exist merely because one party takes advantage of the financial difficulty of the other. It is a different matter, however, when the wrongful act of one party is the very thing that created the other party’s financial difficulty.

Impossibility of Performance. Another contract defense is referred to as the “doctrine of impossibility,” which applies where the contractual duties would be impossible for anyone
to perform. Subjective impossibility – that is, impossibility which is personal to the promisor and does not inhere in the nature of the act to be performed – does not excuse nonperformance of a contractual obligation. Accordingly, the fact that one is unable to perform a contract because of his or her inability to obtain money, whether due to his poverty, a financial panic, or failure of a third party on whom he relies for furnishing the money, will not ordinarily excuse nonperformance, in the absence of a contract provision in that regard.

Frustration of Purpose. The doctrine of “frustration of purpose” is essentially an equitable doctrine, which to date “has been severely limited to cases of extreme hardship so as not to diminish the power of parties to contract, and … have required proof from the party seeking to excuse himself that the supervening frustrating event was not reasonably foreseeable.” Garner v. Ellingson,
18 Ariz.App. 181, 183, 501 P.2d 22, 24 (1972) [citing Lloyd v. Murphy,
25 Cal.2d 48, 153 P.2d 47, 50 (1944)].

There are generally four requirements that must exist before relief may be granted for frustration of purpose:

  1. The frustrated purpose “must have been a principal purpose of that party” and must have been so within the understanding of both parties.
  2. The frustration must be so severe that it is not to be regarded as within the risks assumed under the contract.
  3. The non-occurrence of the frustrating event must have been a basic assumption [on which the contract was made].
  4. Relief will not be granted if it may be inferred from either the language of the contract or the circumstances that the risk of the frustrating occurrence, or the loss caused thereby, should properly be placed on the party seeking relief.

Contact Chuck Onofry.