Affirmative Defenses to Breach of Contract

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Civil Code section 1567 states: An apparent consent is not real or free when obtained through:

1. Duress;

2. Menace;

3. Fraud;

4. Undue influence; or,

5. Mistake.

1. Statute of Limitation

2. Ratification

3. Novation

4. Unilateral Mistake

Statute of Limitation

On a written contract, the statute of limitation is four years. CCP section 337(1).

On an oral contract, the statute of limitation is two years. CCP section 339(1)

The court held that plaintiff’s contract cause of action accrued when it discovered that the tapes had been erased, not on the date of their erasure, since defendants erased the tapes while they were in their exclusive custody and control. The court held that the ultimate question for the factfinder was whether plaintiff had exercised reasonable diligence in discovering the erasure and that plaintiff bore the burden of proof on such issue. April Enterprises, Inc. v. KTTV, 147 Cal. App. 3d 805

Ratification

“A contract which is voidable solely for want of due consent, may be ratified by a subsequent consent.” Civ. Code 1588. A contract voidable solely for want of due consent may be ratified by acceptance of its benefits. Smith v. Glo-Fire Co. (Cal. App. Oct. 14, 1949), 94 Cal. App. 2d 154.

Ratiﬁcation is the subsequent adoption by one person of an act which another without authority assumed to do as his agent.” Anderson v. Fay Improv. Co. (1955) 134 Cal.App.2d 738, 748.

Since ratiﬁcation contemplates an act by one person in behalf of another, there must exist at the time the unauthorized act was done a relationship, either actual or assumed, of principal and agent, between the person alleged to have ratiﬁed and the person by whom the unauthorized act was done.’ ” Anderson, supra, 134 Cal.App.2d at p. 748

Civil Code §1588 provides that a contract which is voidable solely for want of due consent may be ratified by a subsequent conduct. Additionally, CC § 1589 provides that voluntary acceptance of the benefit of a transaction is equivalent to a consent of all the obligations arising from it, so far as the facts are known, or ought to be known, by the person accepting. A party to a contract who wishes to rescind cannot play fast and loose. He cannot conduct himself so as to derive all possible benefit from the transaction and then claim the right to rescind. The right to rescind may be waived. It is waived by recognition of the existence of the contract after the right to rescind was created. Waiver of a right to rescind will be presumed against a party who, having full knowledge of the circumstances which would warrant him in rescinding, nevertheless accepts and retains benefits accruing to him under the contract. Saret-Cook v. Gilbert, Kelly, Crowley & Jennett (Cal. App. 2d Dist. Sept. 15, 1999), 74 Cal. App. 4th 1211

Novation

Novation is the substitution of a new obligation for an existing one. Civil Code §1530. “A novation is a substitution, by agreement, of a new obligation for an existing one, with intent to extinguish the latter. A novation is subject to the general rules governing contracts and requires an intent to discharge the old contract, a mutual assent, and a consideration.” (Klepper v. Hoover (1971) 21 Cal.App.3d 460, 463.

Civil Code §1531 states that, Novation is made:

By the substitution of a new obligation between the same parties, with intent to extinguish the old obligation;

By the substitution of a new debtor in place of the old one, with intent to release the latter; or,

By the substitution of a new creditor in place of the old one, with intent to transfer the rights of the latter to the former.

Jury Instruction under CACI No. 337 states,

Defendant claims that the original contract with Plaintiff cannot be enforced because the parties substituted a new and different contract for the original.

To succeed, Defendant must prove that all parties agreed, by words or conduct, to cancel the original contract and to substitute a new contract in its place.

If you decide that Defendant has proved this, then the original contract is not enforceable.

Novation is a question of fact, and the burden of proving it is upon the party asserting it. Alexander v. Angel (1951) 37 Cal.2d 856. The ‘question whether a novation has taken place is always one of intention,’ with the controlling factor being the intent of the obligee to effect a release of the original obligor on his obligation under the original agreement.”Alexander, supra, 37 Cal.2d at p. 860.

While the evidence in support of a novation must be ‘clear and convincing,’ the ‘whole question is one of fact and depends upon all the facts and circumstances of the particular case,’ with the weight and sufficiency of the proof being matters for the determination of the trier of the facts under the general rules applicable to civil actions.” Alexander, supra, 37 Cal.2d at pp. 860–861

Unilateral Mistake

Mistake may be either of fact or law. Civil Code section 1576

As a defense to breach of contract, a defendant may claim that there was no contract because she was mistaken about the facts when entering into the contract.

A unilateral mistake of fact may be the basis of relief from a contract. However, such a unilateral mistake may not invalidate a contract without a showing that the other party to the contract was aware of the mistaken belief and unfairly utilized it to take advantage of the other party. Meyer v. Benko, 55 Cal. App. 3d 937.

Under Civil Code section 1577, Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in:

1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or,

2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.

Under Civil Code section 1578, Mistake of law constitutes a mistake, within the meaning of this Article, only when it arises from:

1. A misapprehension of the law by all parties, all supposing that they knew and understood it, and all making substantially the same mistake as to the law; or,

2. A misapprehension of the law by one party, of which the others are aware at the time of contracting, but which they do not rectify.

Bilateral Mistake

A defendant may claim that there was no contract because both parties were mistaken about the facts when entering into the contract. Generally, a mistake of fact occurs when a person understands the facts to be other than they are. When both parties understand the facts other than they are, the mistake necessarily is mutual and thus becomes a basis for rescission. [2]

Duress

Duress consists in any of the following:

(a) Unlawful confinement of the person of the party, or of the spouse of such party, or of an ancestor, descendant, or adopted child of such party or spouse.

(b) Unlawful detention of the property of any such person.

(c) Confinement of such person, lawful in form, but fraudulently obtained, or fraudulently made unjustly harassing or oppressive.

Civil Code section 1569

Economic Duress

The doctrine of ‘economic duress’ can apply when one party has done a wrongful act which is sufficiently coercive to cause a reasonably prudent person, faced with no reasonable alternative, to agree to an unfavorable contract. The party subjected to the coercive act, and having no reasonable alternative, can then plead ‘economic duress’ to avoid the contract. [4]

As it has evolved to the present day, the economic duress doctrine is not limited by early statutory and judicial expressions requiring an unlawful act in the nature of a tort or a crime. Instead, the doctrine now may come into play upon the doing of a wrongful act which is sufficiently coercive to cause a reasonably prudent person faced with no reasonable alternative to succumb to the perpetrator’s pressure. The assertion of a claim known to be false or a bad faith threat to breach a contract or to withhold a payment may constitute a wrongful act for purposes of the economic duress doctrine. . . . Further, a reasonably prudent person subject to such an act may have no reasonable alternative but to succumb when the only other alternative is bankruptcy or ﬁnancial ruin. [5]

Menace

Menace consists in a threat:

1. Of such duress as is specified in Subdivisions 1 and 3 of the last section;

2. Of unlawful and violent injury to the person or property of any such person as is specified in the last section; or,

3. Of injury to the character of any such person.

Civil Code section 1570

Undue Influence

Under Civil Code section 1575, Undue influence consists:

1. In the use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him;

2. In taking an unfair advantage of another’s weakness of mind; or,

3. In taking a grossly oppressive and unfair advantage of another’s necessities or distress.

Fraud

Consent is deemed to have been obtained through one of the causes mentioned in the last section only when it would not have been given had such cause not existed. Civil Code section 1568

Fraud is either actual or constructive. Civil Code section 1571

Under Civil Code section 1572, Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:

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 that which is true, by one having knowledge or belief of the fact;

4. A promise made without any intention of performing it; or,

5. Any other act fitted to deceive.

Under Civil Code section 1573, Constructive fraud consists:

1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or,

2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.

Waiver

Waiver is the intentional relinquishment of a known right after knowledge of

the facts.” (Roesch v. De Mota (1944) 24 Cal.2d 563, 572.

“[Waiver] may be implied through conduct manifesting an intention to waive.

Acceptance of beneﬁts under a lease is conduct that supports a ﬁnding of

waiver.” (Gould v. Corinthian Colleges, Inc. (2011) 192 Cal.App.4th 1176, 1179.

Waiver is ordinarily a question for the trier of fact; ‘[h]owever, where there are

no disputed facts and only one reasonable inference may be drawn, the issue

can be determined as a matter of law.’ ” DuBeck v. California Physicians’

Service (2015) 234 Cal.App.4th 1254, 126.

When the injured party with knowledge of the breach continues to accept

performance from the guilty party, such conduct may constitute a waiver of the

breach. (Kern Sunset Oil Co. v. Good Roads Oil Co. (1931) 214 Cal. 435, 440–441

There can be no waiver where the one against whom it is asserted has acted without full knowledge of the facts. It cannot be presumed, in the absence of such knowledge, that there was an intention to waive an existing right. Craig v.White (1921) 187 Cal. 489, 498.

The “clear and convincing” standard applies “particularly” to rights favored in the law; however, it does not apply exclusively to such favored rights. It is proper to instruct a jury that waiver must be proved by this higher standard of proof. (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe and Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 61

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