Business Law

Contesting a Contract

Updated by Brian Farkas, Attorney
When the law says you don't have to honor a contract that you signed.

Contracts are legally binding promises. Each party to a contract makes certain commitments that are expected to be kept: An employer promises to pay a certain salary in an employment contract; a vendor promises to provide a certain number of widgets to a buyer; a contractor promises to provide certain remodeling services.

In your personal and professional life, you are likely to enter into many contracts. In certain situations, however, you do not need to keep your promise to perform under the contract. The law provides several reasons why you may be permitted to break a contract. These are called "defenses" to performance. In some cases, they arise from the moment the contract is created. In other cases, they result from events that occur long after the contract is made.

Defenses Arising When a Contract Is Made

Under certain circumstances, a contract can be avoided based on the nature of its formation. These contracts can be void from the get-go, meaning they cannot be enforced.

Contracts made under duress can be voided. Duress is used to obtain a person's consent against his or her will. Consent, freely given, is a necessary part of any contract. Without consent, a contract is not valid. Duress can take many forms. It can be a threat of force or some other harm. For example, if a person holds a gun to your head to get you to sign a contract, the contract is not enforceable.

Fraud and misrepresentation are also defenses to a contract. Misrepresentation is a false statement about a material fact relied on by a party to the contract. In the case of a misrepresentation, the injured party may rescind the contract. A misrepresentation can be interpreted as an innocent misstatement of a fact, whereas a fraud is a deliberate misstatement of a fact.

In the case of fraud, the defrauded party may rescind the contract and sue the wrongdoer for damages. For example, imagine that an antique dealer gets you to buy a table by saying it was made around the year 1800. If the dealer knows it was really made in 1950, that is fraud. You may rescind the contract. That is, you can return the table and get your money back. You may also be able to sue for other damages resulting from the transaction. And you may have additional remedies under the law of consumer fraud.

Mistake occurs where one or both parties to the contract believe a fact to be true when it is not. If one party makes a mistake, the error is called a unilateral mistake. Generally, this type of mistake does not invalidate the contract. The law does not excuse negligence or inadvertence. For example, if you sell somebody a table that you think is an ordinary table made in 1950 for a few dollars, and it turns out to be a valuable antique made in the year 1800, the law will not ordinarily invalidate that contract. However, if the buyer induced the mistake, then you may rescind the contract.

If both parties to a contract make a mistake, the error is called a bilateral mistake. This type of mistake generally voids the contract because there was no meeting of the minds or consent.

Lack of consideration is another defense to a contract. Consideration is what each side gives to the other in a contract. Consideration makes a contract different from a plain promise. For example, a promise to make a gift is ordinarily not enforceable as a contract.

The situation may change if you promise to do something and the other person relies on your promise. For example, imagine that you promise to donate a million dollars to your college, in order to build a library. The college starts to build the library in the belief you will honor your promise. Most courts would hold that you are required to make the gift. The law assumes that the building of the library in reliance on your promise serves as the consideration for the promise to make the gift. Additionally, according to the law in some states, a promise to make a gift to a charitable organization is an enforceable promise even if there is no consideration.

The Statute of Frauds may sometimes be used as a defense to certain kinds of contracts. The Statute of Frauds requires some contracts to be in writing. Usually these are contracts for the sale of land, as well as contracts over a certain amount in value. If these kinds of contracts are not in writing, they are not legally enforceable. However, the Statute of Frauds may not be a defense to an unwritten contract if one of the parties has relied on the contract to his or her detriment.

Defenses Arising After a Contract Is Made

Even if your contract is valid at the time that it is made, you may still lawfully refuse to honor it if certain events occur afterwards.

If the other side fails to perform its part of the contract, you do not need to perform yours. Let's say you contracted to buy a ton of Granny Smith apples for $100. The seller delivers a ton of crisp apple pies. Obviously, this is not what you bargained for, and you do not need to perform (that is, pay for the pies).

Your performance also may be excused if it becomes impossible to do what the contract requires. This concept is known as "impossibility of performance." Impossibility can be the result of a change in relevant law, or a change in relevant fact.

For example, let's say you agree to deliver 100 pounds of medical marijuana to a dispensary in three months for $50,000. One month later, lawmakers pass a bill making medical marijuana illegal. Your contract is now impossible to perform legally, and you are excused from delivering the marijuana.

Facts can change too. Imagine that you make a contract with a singer to sing at a party. A few days later, the singer passes away. The contract is no longer possible to perform because of this change in facts.

Questions for Your Attorney

  • I bought a cheap framed painting for $2 at a yard sale. It turns out that the back side of the canvas, which was hidden, is a painting by Van Gogh. The buyer is now suing to get it back. Can I keep it?
  • I agreed to sell my car to a used car dealer at a lowball price because I was being blackmailed by another person and needed the money. Can I get my car back because I acted under duress?
  • I bought an artwork from a dealer who said it was by a famous artist. It was signed with the artist's name but it turned out to be a forgery. Can I get my money back?
  • My elderly aunt signed a contract to buy a car she can't afford. She hasn't been diagnosed with anything affecting her mind, but I think she's getting forgetful. Is there a way to undo this contract?

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