Many businesses are surprised to find out that seemingly valid contracts may still be viewed as unenforceable in the eyes of the court. Here are a few situations that may affect the validity of your contract. Keep in mind that the defenses below can be used as a sword or a shield, meaning that while you may be able to use them to get out of a contract, they can also be used against you.
Lack of Capacity
In order to be enforceable, both parties must have the capacity to understand the consequences of their agreement. The issue of capacity often arises in contracts with minors, seniors, and those suffering from mental impairment (from mental illness to intoxication).
In order to be enforceable, one party must not take advantage of a position of power over another more vulnerable party, thereby taking away the party’s free will to bargain over the terms of the contract. There are certain relationships that will raise suspicion of undue influence, including: government/citizens, parent/child, guardian/ward, doctor/patient, lawyer/client, and clergy/parishioner.
In order to be enforceable, both parties must have freely consented to the agreement. Therefore, if one party was coerced into making the agreement, the court will not enforce it. Examples of duress encountered in business include threats to refuse to perform a contract in order to extract an economically unjustified modification (get a better deal); threats to refuse to do business with the party; and threats to blackmail the party or extort money.
Misrepresentation and Fraud
In order to be enforceable, both parties must be honest and forthcoming in the negotiation of the contract. Misrepresentation and fraud include making false statements as well as failing to disclose pertinent information. The difference between misrepresentation and fraud is that fraud is deliberate.
In order to be enforceable, a contract must reflect a “meeting of the minds” between the parties. Therefore, if there is an error with respect to an important issue, the court may not uphold the contract. This is particularly true in the case of an error by both parties (mutual mistake).
How We Can Help
If you are concerned about the enforceability of your contracts, it is imperative to consult with an experienced business attorney. Our firm can help you achieve your business goals, while also minimizing your liability. Contact us today to schedule a free consultation.