Defenses to the Enforcement of a NJ Contract
Often, people enter into a contract and then want out. Maybe they underpriced the job, the price of materials unexpectedly went up, or a key employee resigned. Once it is determined that there is a contract, the question is whether there are any defenses to its enforceability. There are some defenses that render a contract unenforceable (void), and others that give the parties the option to withdraw from or enforce the contract. Let’s look at them.
Do the Parties to the Contract Have Legal Capacity?
Now that sounds like a mouthful, but it’s quite elementary. Let me explain. To be bound by a contract, the parties must be legally competent. Underage persons and persons who are mentally ill usually are not held to the contracts they enter. A similar concept involves corporations that fail to properly register to do business in New Jersey. Be careful with this point, as it can expose the signer to personal liability under the contract.
Mistake, Duress, and Fraud: The Most Commonly Used Defenses in a New Jersey Contract Dispute
A mistake by both parties to a contract on an important issue makes the contract unenforceable. A mistake means an error or misunderstanding of a material fact contained in the contract. However, a mistake by only one party does not necessarily make the contract void.
Duress is the use of physical force or mental pressure by one party to induce the other to agree to the contract. Duress is considered to affect the fairness and independence of the contract. The use of duress renders the contract voidable by the party subjected to it. If, for example, I need credit to launch a product and I tell a party with money to lend that I’m desperate, and the creditor charges 20% interest, that’s likely economic duress.
Fraud is the intentional misrepresentation of an important fact in a contract. The presence of fraud in a contract renders it voidable by the party upon whom the fraud was perpetrated. Fraud can be an affirmative misrepresentation or a concealed failure to disclose a known fact. Claims of fraud under a contract are often made to get out of a “bad deal” by one party to the contract.
Unconscionability of the Underlying Contract; It’s Hard to Establish but Very Effective if Proven.
A contract may be unenforceable if a court finds it flagrantly unfair. This defense is usually found in consumer cases, in which a person buys an item under terms so grossly unfair to the customer that the court refuses to enforce the contract.
Statute of Frauds: Put Your New Jersey Contract in Writing or Face the Risk!
The law of contracts often refers to a legal term called the Statute of Frauds. This is a complex term that requires certain types of contracts to be in writing to be enforceable. The defense that the contract falls within the Statute of Frauds means that the agreement must be shown to be “in writing” and contain certain minimum terms and provisions in order to be legally enforced in court. In the absence of such writing, the legal proceeding to enforce the contract will be dismissed.
What type of contracts fall within the Statute of Frauds?
- A Contract that will last longer than one (1) year.
- A contract for the sale of real estate or an interest in real property must be in writing and signed by the party to be charged.
- A promise to pay or guarantee payment for the debt of another. Illustration. The promise by an individual to guarantee payment of his or her corporation’s or LLC’s debt (s) must be in writing and signed by him or her individually to be enforceable against him or her personally.
- A contract for the sale of goods valued at $500 or more must be in writing in NJ. It must be signed by the party against whom enforcement is to be sought.
The writing required in a contract for the sale of goods need not be a formal contract. It can be a memorandum, e-mail, letter, or note indicating that a contract was made and its terms.
Sometimes, a writing is not required if the product to be manufactured is especially for the buyer and is not suitable for sale to others in the ordinary course of business. These are special, unique exceptions to the law on SOFs that require especially strong facts to win.
Illustration. If a custom furniture manufacturer enters into a contract to manufacture furniture according to the specifications of the buyer, his commitment does not have to be in writing to be enforced, if clearly proven.
Fredrick P. Niemann Esq.
As you can see, there are many potential defenses that can be alleged to avoid performance of a contract. But I have not listed every possible defense, only the major defenses. If you’re caught up in a contract that needs to be defended, for or against its terms, contact me. Together we can figure it out. Please call Fredrick P. Niemann, Esq. at (732) 863-9900 or email him at fniemann@hnlawfirm.com.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Monmouth County, New Jersey Contract Attorney