Business Attorney in Texas

Contracts Center - Defenses to Breach of Contract

A prudent businessperson always considers whether a new contract, no matter how formal or informal, will be legally enforceable. It is important for business owners to base their judgments on an understanding of the essential concepts of contract law in order to form sound, binding contracts, and in order to know what defenses are available to them to avoid contract claims.

Contracts Defined

The most fundamental defense to a breach of contract claim is to deny that contract was ever made. A contract is nothing more than an agreement between two or more parties, in which the following elements are present:

• Offer: one party offers something of value to another party.
• Acceptance: the offeree agrees to accept the offer.
• Consideration: the offeree gives something of value to the offeror.

A party bringing a suit for breach of contract must be able to produce evidence to show that each of these elements is met in order to succeed.

Defenses Defined

Even though the elements of a contract are proven to be present, a contract may not be enforceable for a number of reasons, which constitute defenses to a breach of contract claim. The various defenses are rules that courts enforce to ensure that the formation of the contract was fair and legal. There are two categories of contract defenses. Defenses that result in voidable contracts are those that give the party treated unfairly the option to void the contract. Defenses that result in unenforceable contracts are those that make the contract so wrongful that a court will not enforce it even if both parties were willing to be bound by the contract. The following sections discuss some of the common contract defenses.

Lack of Capacity

The law recognizes that certain people are not capable of fully understanding the consequences of the decision to enter into a binding contract, whether because of age, mental infirmity, or other reasons. Lack of capacity to contract is a defense to contract claims. Contracts made by persons who lack capacity are either void or voidable, depending on the reason for lack of capacity. If the reason for lack of capacity is one that does not completely disable a person from understanding the consequences of contracts, the contract may be voidable, meaning that it can be enforced unless the person lacking capacity asserts and proves the defense. But, if the person completely lacks capacity, the contract is void, meaning that it can never be enforced.

In most states, minors (below eighteen years) are held to lack capacity to contract. A minor or his or her guardian can cancel any contracts before the minor turns eighteen. Even after the minor's eighteenth birthday, a minor is given a reasonable period of time to cancel contracts. Contracts entered into by minors that are not cancelled soon after the minor turns eighteen are considered ratified and become enforceable.

Contracts made while one of the parties was intoxicated or under the influence of drugs are sometimes voidable. Courts usually will not allow the defense unless the intoxication was involuntary or unless the other party knew of the intoxication and took advantage of the situation.

Undue Influence, Duress, Misrepresentation

A defense to enforcement of a contract can be asserted if one party committed fraud, coercion, or improper influence when forming the contract.

• The defense of undue influence is available if one of the parties used some improper means to persuade the other into an unfair contract. A typical basis for undue influence is that a party was influenced into an unfair, detrimental contract by a person in a relationship of trust with the victim.
• Duress can be asserted when a party was threatened with some wrongful or illegal action, such as by blackmail.
• Misrepresentation means that one of the parties deliberately made a false statement to the other, withheld required information, or otherwise concealed information, and the dishonesty helped induce the victim to enter into the contract.

Unconscionability

Unconscionability is a defense that can be asserted when the terms of the contract or the circumstances of the negotiation process were so unfair or wrongful that they shock the court's conscience. There are many different circumstances that might invoke this defense. The courts consider a number of factors to determine whether the defense should be allowed in a given case. One such factor is whether the parties possessed grossly unequal bargaining power and the contract was very unfavorable to the weaker party. The parties' relative education, understanding of the subject matter of the contract, and opportunity to negotiate or consult an attorney are also relevant factors.

Illegal Subject Matter and Against Public Policy

Naturally, courts will not enforce contracts to do something that is illegal because they would be encouraging acts that hurt the public welfare. Similarly, courts sometimes invoke the amorphous doctrine of public policy to refuse to enforce contracts that they consider to be immoral or harmful, if not necessarily illegal.

Mistake

If both of the parties to a contract based their decisions in part on mistaken beliefs concerning facts that existed at the time of contracting, the contract can be cancelled due to mutual mistake. Sometime parties assume the risk of mistakes in a contract, which negates the availability of the defense of mistake. Of course, if a party's mistake is only that he or she did not read the contract completely, the defense is unavailable.

Summary

Understanding the defenses to contracts is important for businesspeople both when forming contracts and when seeking to enforce a contract or defend a breach of contract suit. Consultation with a skilled business attorney in Texas is important to predicting and utilizing these defenses effectively.

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Centrally located in the Arboretum area of north Austin, the Slater & Kennon law firm represents clients in Travis County, Bastrop County, Burnet County, Williamson County, and Hays County, including the cities of Austin, San Marcos, Bastrop, Burnet, and Georgetown.