When deciding on a contract dispute, a court first determines whether the parties had a valid contract. The court must find that one party made an offer, the other accepted it, and they must have exchanged something of value in exchange for a promise.
This last element is known as the requirement of “consideration,” and the consideration can be almost anything of value, including another promise. The point is to show that the parties entered into the agreement knowingly. If the court finds offer, acceptance and consideration, then it determines that the agreement met the requirements of a contract.
Once the court decides that the agreement constituted a contract, the court must determine whether it should enforce the contract.
However, one party to the contract can offer a defense to argue why the court should refuse to enforce it. These defenses include: capacity, undue influence, duress, misrepresentation, unconscionability, public policy and mistake.
A capacity defense centers on the idea that one party lacked legal capacity to enter into contract. For example, a child lacks legal capacity. If a minor enters into a contract, the minor or his or her guardian may void the contract.
Undue influence, duress and misrepresentation defenses center on the idea that one party was illegally threatened, pressured or defrauded into the agreement. For example, if one party to a contract lied about its ability to follow through with its end of the agreement, then the other party may argue the contract should not be enforced.
Public policy and unconscionability defenses ask the court to refuse to enforce the contract because the subject matter is illegal, immoral or otherwise against public policy. For example, a court will not enforce a contract over the sale and purchase of illegal drugs.
A defense based on mistake must show that both parties made a mistake about a basic assumption underlying the contract.
A business lawyer can help small business owners to understand their options when they face a contract dispute.