Legal Defenses to Contract Formation & Enforcement

Individuals as well as small businesses can bring a motion to dismiss a contract because the contract is on its face illegal. All contracts must include an offer, an acceptance of the offer and consideration. However, even though a contract may include these elements, it may not be enforceable if the business can show a sufficient defense to the formation of the contract. Defenses are reasons why a court may not enforce the contract. A valid defense may cause the court to deem the contract as unenforceable, meaning the contract may be canceled, revoked or even voided altogether. Voided contracts have been declared by a court as never having been formed.

Capacity of contract is the legal ability to form a contract. People who are mentally ill, minors, under the influence of drugs or alcohol, or under a legal guardianship lack the legal ability to contract. For example, if an individual signs a contract with someone he knows is intoxicated, the intoxicated person can claim he did not have the capacity to agree to the contract and have the contract voided.

Duress can be claimed when an individual is threatened or coerced into signing the contract. The individual making the claim must show that any reasonable person in his position would have signed the contract against his will. For example, an individual who is blackmailed can use duress as a defense. Economic duress -- where a person signs a contract because he could not get the items he needed from someone else -- also has been used as a defense; however, courts are split on whether this defense is sufficient.

A court may declare the unconscionability defense valid when the substantive terms of a contract are unfair, one-sided or oppressive. The court will look at various elements in determining whether a contract is unconscionable. If these elements shock the conscience of the court, meaning there was a gross inequality of bargaining power, it will not enforce the agreement because of procedural unconscionability -- bargaining unfairness -- or substantive unconscionability -- oppressive terms. Both parties to the contract must be on equal footing.

A court can declare mutual mistake as a defense to cancel a contract. Both parties must have a mutual misunderstanding as to the assumption on which the contract was based. A party cannot claim that he did not read the contract as a defense and therefore didn't understand what was in the contract. He is bound by the contract terms whether he reads it or not. However, if there is a mutual mistake of fact, the contract is voidable.