The following contract defenses provide an arsenal of not-so-secret weapons that you can use to get out of an unfavorable contract. This article will provide you with a basic understanding of these defenses, enhancing your understanding of the contracts you sign as well as your ability to identify the situations where an attorney consultation may be useful.
- Material breach by the other party: If the person that you contracted with has himself breached the contract, then you are no longer bound by it, so long as the breach is material. A breach is material if it is the type of breach that defeats the purpose of the contract. In other words, a minor deviation from the terms of the contract by the other side does not absolve you of your duty to perform.
- Anticipatory Repudiation: If the other party represents or takes action to indicate that he does not intend to perform his obligations under the contract, you are absolved of your own obligation to perform. This defense would arise if, for example, you contract to buy a television from a friend only to discover that, between the time of contracting and the exchange, your friend has put the television up for auction.
- Duress: If you were forced to sign the contract against your will, you are not bound by it. This defense includes not only physical duress (the proverbial gun to your head), but also economic duress. Economic duress is defined as the unlawful use of financial or economic pressure or threats to force a person to contract.
- Unconscionability: An unconscionable contract is one that is extremely one-sided in favor of the party with superior bargaining power. An example of an unconscionable contract is an unfair contract that exploits a poorly educated or impoverished consumer. Individual clauses within contracts have also been held to be unconscionable. This usually occurs in the context of a take-it-or-leave-it contract, called an adhesion contract, where the party with superior bargaining power drastically limits the rights and remedies of the other party without significantly limiting its own.
- Mistake: Courts will not enforce a contract where there is a material mistake regarding the subject matter, so long as the mistake is mutual. If only one party is mistaken, courts will not enforce the contract if the other party knew of the mistake and should have acted to prevent it.
- Fraud: If you entered into a contract because of a material misrepresentation of fact by the other party, the contract is not enforceable against you. It will, however be enforceable against the party committing the fraud. Bear in mind that failure to disclose material information (omission) also qualifies as fraud.
- Undue influence: A contract will not be upheld where one party exercises control over another party so as to overcome that party’s independent judgment. The definition of undue influence includes, but is not limited to, exploitation of a vulnerability, such as a mental deficiency; exploitation of a confidential relationship; blackmail; bad faith threats of criminal prosecution; or extortion.
- Impracticability: If an unexpected event makes performance of the contract impossible or impracticable, neither party will be bound by the contract. Examples of impracticability include the death of an individual who is to provide a service; destruction of property that is the subject of the contract through a natural disaster, or a new law that renders the contract illegal.
- Loopholes: The terms of the contract may provide you with a loophole that provides you with an out. Be sure to have your lawyer review your contract.
- Statutes: State or federal statutes may invalidate your contract or certain clauses within it.
- One-sided clauses: Many states will interpret a one-sided contract clause as reciprocal. For example a provision requiring only one party of a contract to pay attorney fees if it loses in litigation may be applied to both parties by the courts.
- Ambiguities: Ambiguities in the contract will be interpreted against the drafter, especially where the drafter has superior bargaining power.
- Modification: Often the other party will be willing to renegotiate and modify the contract based on changed circumstances.
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