Because a contract requires the two sides to come to a “meeting of the minds” if both sides of the contract were mistaken about the key facts the contract is based on, there may never have been a true contract formed. When both sides were under the same mistake it is called a mutual mistake.
If one side is under a mistaken impression, this is called a unilateral mistake. Usually, a unilateral mistake is not a defense to breach of contract. The primary exception is when the other side is aware of the mistaken understanding and remains silent, allowing the contract to move forward based on the mistake. In circumstances where the other side knew of the mistake, the court may excuse the mistaken party’s breach.
Fraud is related to mistake. If one side induced the other into entering a contract through dishonesty, trickery, or other form of fraud, a court will excuse the defrauded side from performing their duties under the contract.
The idea of fraud as a defense is once again tied to the concept that a true contract cannot be formed unless the two sides agree on the underlying facts of the deal. If one side lied about the facts or somehow misled the other party, there was never a true “meeting of the minds”. This means there was never actually a contract. One side cannot have actually breached the agreement because there was never a true agreement in the first place.
Sometimes fraud is also used as a counterclaim in a contract dispute. The side that was defrauded asks the court to award it damages from the harm it suffered as a result of the dishonesty. However, fraud when used a defense to a breach of contract is different than when used as a counterclaim.
Duress is another defense that looks at the mindset of the parties entering into the contract. If you force someone to sign a contract under some sort of threat, they cannot be said to have voluntarily entered into a deal. There is no true contract present.
When raising the defense of duress, the nature of the force used to compel one side to enter into the contract is important. A threat of physical harm will most likely be considered duress. But, not all threats will rise to the level of duress. If during negotiations one side threatens to sign a deal with a competitor unless the other side gives in on some key point, that contract is not made under legal duress.
For duress to excuse performance of a contractual duty, the duress must essentially deprive the party of their agency, or ability to choose.
Duress is a high legal standard.
Unconscionability is the idea that the terms of the contract are so one-sided that they are unjust. It is common for one side in a contract negotiation to have more power than the other side. But, these ordinary situations do not rise to the level of unconscionability.
To qualify for this defense the contract must be so unjust that no reasonably informed person would ever consent to the terms. Courts will often look at the situation of the parties when examining a contract for unconscionability. It will consider factors such as age, bargaining power, mental capacity, and the availability of other options.
If a contract is found to be unconscionable, it is unenforceable. However, courts are usually reluctant to make a finding of unconscionability in commercial contracts.
Lack of Consent
Because a contract is dependent upon the two parties reaching an agreement, the inability of one side to consent to the deal would make the contract voidable.
Lack of consent includes everything from mental capacity to the age of the parties. Someone under 18 cannot consent to a contract. Someone who is inebriated may be incapable of entering into a contact.
But, in the commercial setting the concept of consent often comes down to the authority to enter into a contract for an organization. Companies enter into contracts. They are legal persons. However, a company itself cannot sign a contract. Instead an authorized representative must enter into, and sign, any contracts of the company’s behalf.
If someone is not an authorized representative they cannot enter into a contract that binds the company. The company cannot be said to have consented to a contract that was signed by someone acting without the proper authority.
Impossibility or Impracticability
When it is objectively impossible for anyone to perform the duties of the contract, one side may use the defense of impossibility to excuse performance. This is sometimes known as absolute impossibility. However, this defense cannot be used if the party is the one that caused performance to be impossible.
Impracticability means that while performance is technically possible, it extremely difficult for the party to perform, even if another party could perform those same duties.
These defenses are very fact specific. Courts usually require extreme circumstances to excuse performance of contractual duties because of impossibility or impracticability.
Frustration of Purpose
In order to qualify for the defense of frustration of purpose, there must have been an unforeseen event that severely undermines the original justification for entering into the contract. Often, frustration of purpose comes from changes in governmental rules or regulations. But, almost any event can be the basis of a frustration of purpose defense so long as:
- The event was unforeseen by the parties
- The event was caused by a third party or outside force
- The event makes performance of the contract contrary to the original understanding of the parties
Statute of Frauds
The law requires certain types of contracts to be made in writing to be valid. This is known as the statute of frauds. Land contracts must be in writing to be enforceable. If someone makes a claim of breach of contract, the statute of frauds may be a defense if the contract was not in writing when it should have been. The contract then becomes unenforceable.