Understanding Defenses to Contract Formation and Enforceability

Business and legal agreements can be complex, especially when disputes arise. You may not be responsible for the contract breach, however; opposing parties may still file a statement of claim to initiate arbitration or other alternative dispute resolution methods. So, understanding the nuances of defenses to contract formation is crucial.

This article will explore the various defenses to contract enforceability, giving you the legal safeguards available in the events of contractual disputes.

What is Contract Formation?

Before we dive into the defenses, let’s take a look at what contract formation entails. Contract formation or the formation of a contract refers to the process by which parties (two or more) establish a legally binding contract.

A legal contract is compose of 5 primary elements. Namely, an offer, acceptance, consideration, intention to create legal relations, and certainty of terms.

1. An offer: In which one party proposes the terms of the agreement

2. Acceptance: In which the other party agrees to the offered terms

3. Consideration: Details the exchange of something of value between the parties

4. Intention to establish legal relations: Indicates that both parties intend to be legally bound by the contract

5. Certainty of terms: A section that guarantees contract terms are clear, unambiguous, and comprehensive.

To make them legally enforceable, these stages of contract formation must be addressed, usually accompanied by the assistance of an expert lawyer, or with a contract form.

Common Defenses to Contract Formation and Enforceability

When a contract breach occurs or disputes arise, typically one party will be accused of breaching the contract. If you are the defendant, you may use different defenses to contract formation to argue that the contract should not be enforced.

There are numerous defenses to contract enforceability, depending on the agreement and the nature of the dispute. Here are some of the most common forms of defenses:

1. Lack of Capacity

One of the fundamental defenses to contract formation is a lack of capacity. It is when a party contend that they lacked the legal capacity to enter into an agreement, usually at the time it was formed.

This particular defense typically applies to individuals who are a minor (under 18 years of age), people with certain mental conditions or disabilities, and in rare cases, those who are under severe intoxication at the time of contract formation.

2. Duress and Undue Influence

As you may know, contracts must be entered into voluntarily. If a party can prove they were forced or unfairly pressured into signing an agreement, they may have the legal grounds to void the contract. A “duress” typically involves threats or physical force, giving the party a lack of viable alternatives. While “undue influence” refers to excessive persuasion or manipulation.

Duress and undue influence scenarios are common among parties with fiduciary relationships like parents and their children, trustees and beneficiaries, or even doctors and patients.

3. Statute of Frauds

Fraud occurs when one party intentionally deceives another about the details of the contract, the deceived can argue and raise defenses to contract enforceability. This defense generally applies to certain types of contracts that are required to be in writing, such as contracts for the sale of real estate, agreements that cannot be performed within one year, or contracts for the sale of goods over a certain value.

4. Illegality

Illegality is when there is a situation where contracts become unenforceable due to the illegal subject matter. For example, a contract that involves smuggling illegal goods, a contract that contravenes tax regulations, or one that demands the destruction of records are all considered illegal. Thus the accused party can raise an illegality defense against their plaintiff.

5. Unconscionability

The unconscionability defense applies when a contract is one-sided and unfair that enforcing it would be immoral or unethical. Courts would consider factors like unequal bargaining power, unfair surprise, and oppressive terms when determining if a contract is unconscionable.

6. Mistake

In some cases, a contract may be voidable when there is a major mistake or shared misunderstanding about an aspect of the contract. That said, these defenses are raised in situations where both parties are mistaken about the same material fact, or in unilateral mistake—when one party is mistaken, and the other party is aware of this mistake.

These defenses to contract formation and enforceability are crucial for anyone engaging in business or contractual agreements. While contracts exist to provide security and clarity in transactions, these defenses serve as safeguards against unfair, deceptive, or invalid agreements.

Still, these defenses often require strong evidence and can be complex to present. If you find yourself in a situation where you need to challenge the validity of a contract, it is advisable to consult with a qualified legal professional who can guide you through the process.

In such a scenario, Thai Arbitration Center (THAC)—a leading institution in Thailand that provides expert arbitration and mediation services, is ready to help you resolve disputes efficiently and effectively.

Take the first step towards resolving your dispute efficiently and effectively.

Contact THAC: thac.or.th/contacts/

About THAC

As an international arbitration institution, THAC specializes in providing effective and impartial dispute resolution services. Our team of seasoned arbitrators and mediators brings a wealth of experience to the table, ensuring that your business disputes are handled with the utmost expertise and professionalism.

If you have questions about our arbitration services or any other legal services, please get in touch with us at:

Email: [email protected]

Call: +66 (0)2018 1615

THAC is looking forward to helping you.