Key Takeaways

  • Defenses to contract formation include incapacity, mistake, fraud, and duress, among others.
  • Some defenses address issues at the time of formation, while others relate to performance or enforcement.
  • New additions expand on lesser-known defenses such as illegality, failure of consideration, and statute of frauds.
  • Courts assess each defense on a case-by-case basis, often requiring substantial proof from the party raising the defense.
  • Even if a contract appears valid, defenses can make it void, voidable, or unenforceable.

Most contract defenses of a breach of contract claim are "affirmative defenses," but there are many others than can also be raised to claim that a contract is not enforceable.

It is usually not enough to simply deny legal wrongdoing. Instead, you should respond to a breach of contract claim with every possible argument or defense that supports your position. The party raising the defense usually has the burden of proving it. You should also raise defenses early in the lawsuit. If you do not, you might not be allowed to raise them later.

Here are some of the defenses that you can raise:

Error in Formation

If the required elements of offer, acceptance, or consideration are missing from contract formation then there is no valid contract between the parties.

Lack of Capacity

If any party lacked the capacity to fully understand the contract and its terms at the time of contract formation, the contract is invalid. This defense is most successful when minors and those with mental incapacities are involved.

Minor and Mental Incapacity in More Detail

Capacity is especially scrutinized when one party is a minor or mentally impaired. A minor, typically under age 18, may disaffirm a contract at any time before reaching majority and for a reasonable time afterward. However, exceptions may apply to contracts for necessities like food, clothing, or shelter.

Mental incapacity may render a contract void or voidable depending on the circumstances. If a party was declared legally incompetent or cannot understand the nature and consequences of the agreement, the contract is likely voidable at their option. Courts often require medical or psychological evidence to establish mental incapacity at the time of contract formation.

Mistake

There are both mutual mistakes and unilateral mistakes that can invalidate a contract.

A mutual mistake occurs when both parties make the mistake and it is unclear if there was truly a meeting of the minds between the parties. If the mistake significantly changes the subject matter or purpose of the contract, the court will not enforce it.

A unilateral mistake is when one party makes a mistake. These mistakes are not a basis for voiding a contract unless the non-mistaken party caused the mistake, or knew the other party was mistaken and did nothing to correct it. In this case, the court will not enforce the contract.

Unconscionability

A contract may not be enforced if a) a party was wrongly induced to enter into the contract or b) the terms are grossly unfair to one party due to bargaining positions. A stronger bargaining party will know that the weaker party is unable to reasonably protect its interests and the resulting contract may be unconscionable. If so, a court will not enforce it.

Misrepresentation

If a party misrepresents a material aspect of the contract, even accidentally, and the other party reasonably relies on that misrepresentation, a court will find the contract invalid.

Fraud

If a party intentionally misrepresents a material aspect of the contract to the other party, this is fraud and the contract will be invalid. This misrepresentation can be active misrepresentation or hiding information from the other party.

The misrepresenting party must intend to cause the other party to change his mind or action in order to qualify as fraud.

Impossibility

If something happens after contract formation that causes performance of the contract to be impossible or impracticable, by one or both parties, the contract will not be enforced. However, all of the following must be true:

  1. The party looking to avoid his duties under the contract must not have created the impossibility
  2. The parties at the time of contract formation must have assumed the circumstance would not occur; and
  3. The party raising the defense must not have assumed the risk of that circumstance occurring

Commercial Impracticability

While closely related to impossibility, commercial impracticability focuses on unforeseen circumstances that make performance extremely burdensome, though not literally impossible. This defense may apply when a natural disaster, war, or governmental regulation drastically increases the cost or difficulty of performance. Courts assess whether the non-occurrence of such an event was a basic assumption of the contract.

Duress

Duress occurs when a party is forced to enter into the contract when he would not have otherwise entered into it voluntarily.

If a party blackmails you, threatens you with physical harm, or threatens to sue you, they have applied duress that will render the contract not binding.

Undue Influence

Undue influence is similar to duress but involves less severe conduct. Party A has such control over Party B that A’s will is substituted for B’s. Persuasion is not enough to constitute undue influence. This control often occurs where there is a fiduciary relationship between the parties. A fiduciary relationship exists when one party is in a position of trust with the other: usually a familial relationship or a professional relationship. These relationships are scrutinized very closely by courts

Frustration of Purpose

Frustration of purpose is when circumstances substantially frustrate a party’s purpose in entering the contract. For this defense to be effective, the party raising it must not have caused the frustration. Similar to impossibility, the non-occurrence of the event that frustrated the purpose must have been a basic assumption at the time of contract formation.

Failure of Consideration

Failure of consideration occurs when one party fails to perform their obligations under the contract, depriving the other party of the value expected. This defense arises when a supervening event destroys the value of the promised performance. Unlike lack of consideration, which questions whether mutual promises were exchanged at formation, failure of consideration concerns post-formation events that nullify one party’s obligation.

Public Policy

If enforcement of the contract would violate public policy, a court will not enforce the contract.

A contract is unenforceable if its object or the thing bargained for is illegal; however, a court may strike the illegal aspect from the agreement and leave the rest of the contract enforceable.

Statute of Frauds

Under the Statute of Frauds, certain types of contracts must be in writing to be legally enforceable. These typically include:

  • Contracts involving real estate
  • Agreements that cannot be performed within one year
  • Contracts for goods over a specified monetary threshold (often $500 under the UCC)
  • Promises to pay another’s debt (surety agreements)
  • Marriage-related contracts

If a required written contract is missing, the agreement may be voidable. Exceptions include partial performance or reliance that makes enforcement necessary to prevent unjust enrichment.

Illegality

Contracts are void if they require either party to engage in illegal conduct. This includes agreements involving criminal activity, violations of licensing laws, or contracts that violate public morality. Courts will generally refuse to enforce such agreements to avoid encouraging illegal behavior.

There are limited exceptions. If a formerly illegal agreement becomes legal due to changes in law and the parties reaffirm the contract, it may be enforceable. Still, most courts will leave the parties where they stand if the subject matter is illegal.

Frequently Asked Questions

  1. What is the difference between lack of consideration and failure of consideration?
    Lack of consideration means no mutual obligations existed when the contract was formed. Failure of consideration occurs when one party later fails to uphold their obligations, depriving the other of the expected benefit.
  2. Can a verbal contract be enforced?
    Yes, but certain contracts must be in writing under the Statute of Frauds, such as those involving real estate or long-term commitments.
  3. How do courts determine if a contract is unconscionable?
    Courts examine whether the terms are so unfair to one party that no reasonable person would agree to them and whether there was unequal bargaining power.
  4. What if I signed a contract under pressure?
    If you were coerced into signing a contract through threats or intimidation, you may be able to assert duress as a defense.
  5. Are all illegal contracts unenforceable?
    Generally, yes. However, if the illegality is removed by a change in law and both parties ratify the contract, it may become enforceable.

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