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Breach of contract refers to the failure of either party to honor the contract, and the result is typically a loss to the non-breaching party. Therefore, parties have the right to bring a court action to enforce the contract or to request damages for breach of contract.
Later, we will be looking at how courts enforce contracts with equitable remedies, such as specific performance or injunctions, as well as how courts (more typically) compensate the non-breaching party with monetary awards.
For now, we will look at defenses to contract enforcement. Sometimes, a contract will be unenforceable due to some type of insufficiency in the parties’ agreement itself.
In all of the situations that follow, a court may declare a contract either void or voidable. A void contract is considered to be void ab initio, a Latin term that means there never was a valid contract. A voidable contract is one that the aggrieved party may choose to void.
In general, illegal contracts are unenforceable.
The courts must grapple with two types of illegalities:
A contract is a meeting of minds. If someone lacks mental capacity to understand what she is assenting to - or that she is assenting to anything - it is unreasonable to hold her to the consequences of her act.
The general rule is that persons younger than eighteen can avoid their contracts. Although eighteen-year-olds may assent to binding contracts, not all creditors and landlords believe it, and they may require parents to cosign. For those under twenty-one, there are also legal impediments to holding certain kinds of jobs, signing certain kinds of contracts, and drinking alcohol. There is as yet no uniform set of rules.
The exact day on which the disability of minority vanishes also varies. The old common law rule put it on the day before the twenty-first birthday. Many states have changed this rule so that majority commences on the day of the eighteenth birthday.
A minor’s contract is voidable, not void. A child wishing to avoid the contract need do nothing positive to disaffirm; the defense of minority to a lawsuit is sufficient. Although the adult cannot enforce the contract, the child can (which is why it is said to be voidable, not void).
When the minor becomes an adult, she has two choices:
In some states, a court may ratify the contract before the child becomes an adult.
EXAMPLE
In California, a state statute permits a movie producer to seek court approval of a contract with a child actor in order to prevent the child from disaffirming it upon reaching majority and suing for additional wages. As quid pro quo, the court can order the producer to pay a percentage of the wages into a trust fund that the child’s parents or guardians cannot invade. If the child has not disaffirmed the contract while still a minor, she may do so within a reasonable time after reaching majority.In most cases where a minor voids a contract, the only obligation is to return the goods (if she still has them) or repay the consideration (unless it has been dissipated). However, in two situations, a minor might incur greater liability: contracts for necessities and misrepresentation of age.
Contracts made by an insane or intoxicated person are also said to have been made by a person lacking capacity. In general, such contracts are voidable by the person when capacity is regained (or by the person’s legal representative if capacity is not regained).
At common law, a “necessity” was defined as an essential need of a human being: food, medicine, clothing, and shelter.
In recent years, however, the courts have expanded the concept, so that, in many states, today necessities include property and services that will enable the minor to earn a living and to provide for those dependent on her.
If the contract is executory, the minor can simply disaffirm. If the contract has been executed, however, the minor must face more onerous consequences.
Although she will not be required to perform under the contract, she will be liable under a theory of “quasi-contract” for the reasonable value of the necessities.
Duress (or coercion) refers to the exertion of undue pressure to enter into a contract. Such a contract is unenforceable. It is important to note, however, that a court will not set aside a contract for duress unless the pressure involves actual force or the threat of force.
EXAMPLE
It is not considered duress if a seller enters into a contract for the sale of goods at bargain basement prices merely due to financial pressure to make money.The defense of fraud or misrepresentation is always a defense to enforcement of a contract. Fraud refers to any type of trickery or misstating of material facts.
EXAMPLE
A seller induces a person to sign a contract for the sale of real estate the seller does not actually own.EXAMPLE
A used car is sold with a rolled-back odometer that materially misrepresents the car’s mileage.Undue influence is mental pressure by a stronger party over a weaker party.
EXAMPLE
A caregiver of an elderly, infirm party who takes advantage of his superior position in the relationship would be exerting undue influence by exerting control over the weaker party to make that party sign a contract that overcompensates him for his services.Note, however, that many relationships, such as landlord and tenant and employer and employee, include a perceived power imbalance but do not automatically fall into the category of undue influence. In order for a contract to be set aside for undue influence, there must be obvious control and exploitation.
Finally, in most states, a minor may misrepresent her age and disaffirm in accordance. That the adult reasonably believed the minor was also an adult is of no consequence in a contract suit.
But some states have enacted statutes that make the minor liable in certain situations.
EXAMPLE
A Michigan statute prohibits a minor from disaffirming if she has signed a “separate instrument containing only the statement of age, date of signing and the signature."And some states “estop” the minor from claiming to be a minor if she falsely represented herself as an adult in making the ·contract. Estoppel is a refusal by the courts on equitable grounds to listen to an otherwise valid defense; unless the minor can return the consideration, the contract will be enforced.
Source: THIS TUTORIAL HAS BEEN ADAPTED FROM (1) "BUSINESS LAW AND THE LEGAL ENVIRONMENT" VERSION 1.0 BY DON MAYER, DANIEL WARNER, GEORGE SIEDEL, AND JETHRO K. LIEBERMAN. COPYRIGHT 2011. ISBN 978-1-4533-3050-0. (2) "THE LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS" VERSION 1.0 BY TERENCE LAU AND LISA JOHNSON. COPYRIGHT 2012. ISBN 978-1-4533-2750-0 (LICENSEE PRODUCT: BUSINESS LAW), BOTH SOURCES REPRINTED WITH PERMISSION FROM FLATWORLD.
