Contracts are a cornerstone of business law. And if you are a Tennessee business owner, it’s inevitable that you’ll eventually encounter a situation where someone: a vendor, an employee, a tenant—accuses your company of violating a contract.
Thus, it’s important to understand the defenses which might be available to your company.
Defense #1) Someone Has Made a Legitimate Mistake
In some cases, both parties misunderstand the facts which apply to the contract. This is known as a mutual mistake defense.
This defense is known as a unilateral mistake if your company is claiming that your company, and only your company, made a mistake.
This defense can only be applied to misunderstanding the facts which were true when the contract was first formed. It does not apply to situations in which you misunderstand the terms of the contract.
If you are invoking a unilateral mistake defense, your organization will have to prove that the mistake of fact was due to fraud or bad faith conduct on the part of the other party. In some cases, the court has also ruled that it’s only necessary for the other party to either know of the mistake and say nothing, or to be in a position where they should have known about the mistake, and did nothing.
Defense #2) Novation
“Novation” takes place when two parties replace an old contract with a new one. In many cases, the new contract relieves one or both parties from obligations generated by the old contract.
While this seems like it would be straightforward, parties don’t always agree that new contracts replace old ones.
To enact this defense, your attorney will have to help you prove several things. First, that a prior, valid obligation existed. Second, that the new contract actually extinguished the old contract. Third, that a valid new contract does exist.
You should always make sure the old contract is extinguished by written agreement whenever you sign a new contract with any entity. New contracts can’t just be “implied” by new agreements, nor can the dissolution of the old contract simply be assumed, even if it seems like dissolving the old contract is just common sense.
Defense #3) Fraud
If the other party committed fraud when the contract was signed then the law recognizes you should not be held accountable for fulfilling the terms of the contract.
Proving fraud isn’t always easy. You’ll need to work with your attorney to gather the proper evidence.
Defense #4) Impossibility or Impracticality
Sometimes, the duties of a contract simply become impossible to perform. When that happens, it’s possible for courts to dissolve the contract.
This can happen when property or assets you needed to meet the terms of the contract get lost, stolen, or destroyed, when you lose a key person who was responsible for fulfilling the terms of the contract, when natural disasters make delivery impossible, or when new government regulations void the terms of the contract.
There are times when it simply becomes impractical for one or both parties to fulfill contract obligations. This is a more difficult defense to invoke: mere inconvenience isn’t a good reason to avoid fulfilling contract terms. And if the other party can prove you caused the problem or should have done something to prevent it, this defense may well fall flat.
One example of a time when this defense was successfully invoked by hundreds of Tennessee businesses was during and after the 2016 wildfires. It would not have been possible, at least in the short term, for certain businesses to deliver goods and services, for example, while their facilities and inventory were up in flames.
Defense #5) Frustration
Sometimes the value of the contract disappears. For example, if the contract revolved around a unique piece of property that is damaged or destroyed, through no fault of either party.
When this happens, the purpose of the contract is destroyed along with the property, and thus neither party can be held accountable for meeting the terms of the contract.
Preventing Contract Disputes
The way your contracts are written can make a huge difference in the face of some of these events. In certain cases events like fires, floods, and other problems are at least partially foreseeable.
Having your Tennessee business lawyer write in provisions for what must happen when one of these events occurred can keep you from having to battle a breach of contract suit in court.