Contract Defenses Flashcards
Voidable Contract
These contracts may be affirmed or rejected at the discretion of one of the parties. This discretion is given to parties deemed vulnerable
Void Contracts
Not legally enforceable from inception. If a contract is void, neither party can enforce it
Minor Incapacity
Can generally enter into contracts, but they retain the right to disaffirm or cancel these agreements, even if the contract has already been partially or fully executed
Minor Incapacity Exceptions
(1) Necessities of Life: Contracts for essentials like food, clothing, shelter, and medical services are enforceable even against minors, as these items are critical to their well-being.
(2) Misrepresentation of Age: Some jurisdictions prevent minors from disaffirming a contract if they lied about their age, especially if the other party acted in good faith.
(3) Intentional Tortious Conduct: If a minor willfully damages property or commits fraud, they may be liable for restitution.
(4) Statutory Exceptions: Student loans, insurance, and certain employment contracts
(5) Emancipation: Frees a minor from the control of their parents or guardians before they reach the age of majority
Mental Incapacity
A person incurs only voidable contractual duties by entering into a transaction when they are unable to understand consequences of the transaction, or is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition
Cognitive Test
Examines if the party could in a reasonable manner understand the “nature and consequences” of the transaction
Mental Incapacity Exceptions
- Necessities
- Fair Terms without Knowledge
a. The agreement has been performed (in whole or in part)
b. The other party had no knowledge of the incompetency,
c. The terms are fair.
Intoxication
A contract is only voidable if the party seeking rescission was so impaired that they could not understand the “nature and consequences” of the transaction or act reasonably. Very seldom successful
Intoxication Defense
Necessities of Life
Duress
If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim
Improper Threat
(1) Crime or Tort: Threatening a criminal act, physical violence, or harm to property qualifies as improper.
(2) Criminal Prosecution: A threat of prosecution intended solely to coerce contract formation is improper, regardless of the threat’s legitimacy.
(3) Bad Faith Use of Civil Process: A threat to sue in civil court with no actual legal basis is improper.
(4) Violation of Good Faith and Fair Dealing: Any threat that breaches the duty of good faith in a way that denies the other party’s contractual benefits is considered improper.
Physical Duress
A contract signed under physical compulsion is automatically void since no true agreement is made. Courts void such agreements based on public policy and mutual assent principles.
Economic Duress
Arises in situations like contract modifications, settlements, or urgent financial need where one party exploits the other’s financial vulnerability.
Undue Influence
(1) Inducement: The undue influence must have substantially influenced the victim’s decision.
(2) Persuasion: Different from standard negotiation, unfair persuasion occurs when subtle psychological or emotional pressure is applied, often in fiduciary or trusted relationships.
(3) Undue Susceptibility: Courts assess whether the victim was susceptible due to mental, physical, or emotional weakness or due to a trusted relationship.
(4) Inequitable Result: The contract outcome must be unfair or unusually disadvantageous to the susceptible party.
Misrepresentation
(1) False Statement of Fact: A statement that objectively conveys incorrect information (can be non-verbal) about a fact existing at the time of the contract.
(2) Inducement: The false statement must substantially contribute to the recipient’s decision to enter the contract
(3) Justifiable Reliance: The reliance on the false statement must be reasonable given the circumstances.
