What are the defenses to a breach of contract?
If someone is accused of breach of contract, there are a number of defenses available to argue that a contract should not be enforced. If any of the basic contract elements are missing, or if the contract was made with someone of diminished capacity or for illegal purposes, a contract can be unenforceable. Some other examples of potential defenses to enforcement of a contract are mutual or unilateral mistake, duress or undue influence, unconscionability, misrepresentation or fraud, impossibility or impracticability, and frustration of purpose.
Mutual or Unilateral Mistake
There are two types of mistakes in contract law: mutual mistake and unilateral mistake. When there is mutual mistake, both parties have made a mistake regarding the contract and there is generally an issue of whether the parties actually reached a meeting of the minds. In such situations, there is a question of whether a contract even exists. If the mistake significantly changed the subject matter or the purpose of the contract, the court will not enforce it.
Unilateral mistake is when only one party is mistaken regarding the contract. Usually, unilateral mistake is not a basis for voiding a contract. However, if one party caused other's mistake, or knew the other party was mistaken and did nothing to correct it, the court will probably not enforce the contract.
Duress or Undue Influence
Duress occurs when one party is forced to enter into a contract that he would not have entered voluntarily. Blackmail, threats of physical harm, or threats of legal proceedings can all be forms of duress that will cause a court to find that a contract is not binding.
Undue influence is similar to duress but does not usually involve conduct that is so severe. Undue influence occurs when someone exercises such control over another person that the influencer’s will is substituted for that of the controlled person. Simple persuasion does not constitute the kind of unlawful control required for there to be undue influence.
Undue influence can also occur when there is a fiduciary relationship between the contracting parties. A fiduciary relationship exists when one party is in a position of trust in relation to the other, such as a family member, or someone with a certain professional relationship with the influenced party. Courts scrutinize contracts that involve fiduciary relationships much more closely than other contracts.
If a party was wrongly induced to enter into the contract or if the terms are grossly unfair to one party, the contract may not be enforced by the court. This usually occurs when one party is in a much stronger bargaining position than the other party. Often, the stronger party will know that the weaker party is unable to reasonably protect his interests and the resulting contract may be unconscionable and a court may determine it to be invalid.
Misrepresentation or Fraud
Misrepresentation occurs when one party accidentally misrepresents a material matter and the other party reasonably relied on that misrepresentation. Fraud is when one party intentionally misrepresents a material matter to the other party. Fraud can be an active misrepresentation or a concealment of a material fact. The misrepresentation must be intended to persuade the other party to act in a certain way. A court will find a contract based on misrepresentation or fraud to be invalid.
Impossibility or Impracticability
Impossibility of performance occurs when something happens after formation of the contract that makes performance of the contract by one of the parties impossible or impracticable. The circumstance creating the impossibility must not have been the fault of the party seeking to avoid his obligations under the contract. In addition, the non-occurrence of the circumstance must have been a basic assumption the parties made when contracting. Lastly, the party seeking relief must not have assumed the risk of that circumstance arising.
Frustration of Purpose
Frustration of purpose is when events occur or circumstances arise which substantially frustrate a party’s purpose in entering the contract. The party seeking relief must not have been at fault or have caused the frustration. In addition, similar to impossibility, the non-occurrence of the event that frustrated the purpose must have been a basic assumption upon which the contract was made.